[Congressional Record Volume 151, Number 164 (Sunday, December 18, 2005)]
[House]
[Pages H12641-H12737]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      CONFERENCE REPORT ON S. 1932, DEFICIT REDUCTION ACT OF 2005

  Mr. NUSSLE submitted the following conference report and statement on 
the Senate bill (S. 1932) to provide for reconciliation pursuant to 
section 202(a) of the concurrent resolution on the budget for fiscal 
year 2006 (H. Con. Res. 95):

                  Conference Report (H. Rept. 109-362)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the House to the bill (S. 
     1932), to provide for reconciliation pursuant to section 
     202(a) of the concurrent resolution on the budget for fiscal 
     year 2006 (H. Con. Res. 95), having met, after full and free 
     conference, have agreed to recommend and do recommend to 
     their respective Houses as follows:
       That the Senate recede from its disagreement to the 
     amendment of the House and agree to the same with an 
     amendment as follows:
       In lieu of the matter proposed to be inserted by the House 
     amendment, insert the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Deficit Reduction Act of 
     2005''.

     SEC. 2. TABLE OF TITLES.

       The table of titles is as follows:

                    TITLE I--AGRICULTURE PROVISIONS

           TITLE II--HOUSING AND DEPOSIT INSURANCE PROVISIONS

       TITLE III--DIGITAL TELEVISION TRANSITION AND PUBLIC SAFETY

                  TITLE IV--TRANSPORTATION PROVISIONS

                           TITLE V--MEDICARE

                      TITLE VI--MEDICAID AND SCHIP

            TITLE VII--HUMAN RESOURCES AND OTHER PROVISIONS

          TITLE VIII--EDUCATION AND PENSION BENEFIT PROVISIONS

                      TITLE IX--LIHEAP PROVISIONS

                 TITLE X--JUDICIARY RELATED PROVISIONS

                    TITLE I--AGRICULTURE PROVISIONS

     SECTION 1001. SHORT TITLE.

       This title may be cited as the ``Agricultural 
     Reconciliation Act of 2005''.

     SEC. 1002. TABLE OF CONTENTS.

       The table of contents for this title is as follows:
                     Subtitle A--Commodity Programs

     SEC. 1101. NATIONAL DAIRY MARKET LOSS PAYMENTS.

       (a) Amount.--Section 1502(c) of the Farm Security and Rural 
     Investment Act of 2002 (7 U.S.C. 7982(c)) is amended by 
     striking paragraph (3) and inserting the following new 
     paragraph:
       ``(3)(A) during the period beginning on the first day of 
     the month the producers on a dairy farm enter into a contract 
     under this section and ending on September 30, 2005, 45 
     percent;
       ``(B) during the period beginning on October 1, 2005, and 
     ending on August 31, 2007, 34 percent; and
       ``(C) during the period beginning on September 1, 2007, 0 
     percent.''.
       (b) Duration.--Section 1502 of the Farm Security and Rural 
     Investment Act of 2002 (7 U.S.C. 7982) is amended by striking 
     ``2005'' each place it appears in subsections (f) and (g)(1) 
     and inserting ``2007''.
       (c) Conforming Amendments.--Section 1502 of the Farm 
     Security and Rural Investment Act of 2002 (7 U.S.C. 7982) is 
     amended--
       (1) in subsection (g)(1), by striking ``and subsection 
     (h)''; and
       (2) by striking subsection (h).

     SEC. 1102. ADVANCE DIRECT PAYMENTS.

       (a) Covered Commodities.--Section 1103(d)(2) of the Farm 
     Security and Rural Investment Act of 2002 (7 U.S.C. 
     7913(d)(2)) is amended in the first sentence by striking 
     ``2007 crop years'' and inserting ``2005 crop years, up to 40 
     percent of the direct payment for a covered commodity for the 
     2006 crop year, and up to 22 percent of the direct payment 
     for a covered commodity for the 2007 crop year,''.
       (b) Peanuts.--Section 1303(e)(2) of the Farm Security and 
     Rural Investment Act of 2002 (7 U.S.C. 7953(e)(2)) is amended 
     in the first sentence by striking ``2007 crop years'' and 
     inserting ``2005 crop years, up to 40 percent of the direct 
     payment for the 2006 crop year, and up to 22 percent of the 
     direct payment for the 2007 crop year,''.

     SEC. 1103. COTTON COMPETITIVENESS PROVISIONS.

       (a) Repeal of Authority to Issue Cotton User Marketing 
     Certificates.--Section 1207 of the Farm Security and Rural 
     Investment Act of 2002 (7 U.S.C. 7937) is amended--
       (1) by striking subsection (a); and
       (2) in subsection (b)(1)--
       (A) in subparagraph (B), by striking ``, adjusted for the 
     value of any certificate issued under subsection (a),''; and
       (B) in subparagraph (C), by striking ``, for the value of 
     any certificates issued under subsection (a)''.
       (b) Effective Date.--The amendments made by this section 
     take effect on August 1, 2006.
                        Subtitle B--Conservation

     SEC. 1201. WATERSHED REHABILITATION PROGRAM.

       The authority to obligate funds previously made available 
     under section 14(h)(1) of the Watershed Protection and Flood 
     Prevention Act (16 U.S.C. 1012(h)(1)) for a fiscal year and 
     unobligated as of October 1, 2006, is hereby cancelled 
     effective on that date.

     SEC. 1202. CONSERVATION SECURITY PROGRAM.

       (a) Extension.--Section 1238A(a) of the Food Security Act 
     of 1985 (16 U.S.C. 3838a(a)) is amended by striking ``2007'' 
     and inserting ``2011''.
       (b) Funding.--Section 1241(a)(3) of the Food Security Act 
     of 1985 (16 U.S.C. 3841(a)(3)) is amended by striking ``not 
     more than $6,037,000,000'' and all that follows through 
     ``2014.'' and inserting the following: ``not more than--
       ``(A) $1,954,000,000 for the period of fiscal years 2006 
     through 2010; and
       ``(B) $5,650,000,000 for the period of fiscal years 2006 
     through 2015.''.

     SEC. 1203. ENVIRONMENTAL QUALITY INCENTIVES PROGRAM.

       (a) Extension.--Section 1240B(a)(1) of the Food Security 
     Act of 1985 (16 U.S.C. 3839aa-2(a)(1)) is amended by striking 
     ``2007'' and inserting ``2010''.
       (b) Limitation on Payments.--Section 1240G of the Food 
     Security Act of 1985 (16 U.S.C. 3839aa-7) is amended by 
     striking ``the period of fiscal years 2002 through 2007'' and 
     inserting ``any six-year period''.
       (c) Funding.--Section 1241(a)(6) of the Food Security Act 
     of 1985 (16 U.S.C. 3841(a)(6)) is amended--
       (1) by striking ``and'' at the end of subparagraph (D); and
       (2) by striking subparagraph (E) and inserting the 
     following new subparagraphs:
       ``(E) $1,270,000,000 in each of fiscal years 2007 through 
     2009; and
       ``(F) $1,300,000,000 in fiscal year 2010.''.
                           Subtitle C--Energy

     SEC. 1301. RENEWABLE ENERGY SYSTEMS AND ENERGY EFFICIENCY 
                   IMPROVEMENTS PROGRAM.

       Section 9006(f) of the Farm Security and Rural Investment 
     Act of 2002 (7 U.S.C. 8106(f)) is amended by striking 
     ``2007'' and inserting ``2006 and $3,000,000 for fiscal year 
     2007''.
                     Subtitle D--Rural Development

     SEC. 1401. ENHANCED ACCESS TO BROADBAND TELECOMMUNICATIONS 
                   SERVICES IN RURAL AREAS.

       The authority to obligate funds previously made available 
     under section 601(j)(1) of the Rural Electrification Act of 
     1936 for a fiscal year and unobligated as of October 1, 2006, 
     is hereby cancelled effective on that date.

     SEC. 1402. VALUE-ADDED AGRICULTURAL PRODUCT MARKET 
                   DEVELOPMENT GRANTS.

       The authority to obligate funds previously made available 
     under section 231(b)(4) of the Agricultural Risk Protection 
     Act of 2000 (Public Law 106-224; 7 U.S.C. 1621 note) for a 
     fiscal year and unobligated as of October 1, 2006, is hereby 
     cancelled effective on that date.

     SEC. 1403. RURAL BUSINESS INVESTMENT PROGRAM.

       (a) Termination of Fiscal Year 2007 and Subsequent 
     Funding.--Subsection (a)(1) of section 384S of the 
     Consolidated Farm and Rural Development Act (7 U.S.C. 2009cc-
     18) is amended by inserting after ``necessary'' the 
     following: ``through fiscal year 2006''.
       (b) Cancellation of Unobligated Prior-Year Funds.--The 
     authority to obligate funds previously made available under 
     such section and unobligated as of October 1, 2006, is hereby 
     cancelled effective on that date.

     SEC. 1404. RURAL BUSINESS STRATEGIC INVESTMENT GRANTS.

       The authority to obligate funds previously made available 
     under section 385E of the Consolidated Farm and Rural 
     Development Act and unobligated as of October 1, 2006, is 
     hereby cancelled effective on that date.

     SEC. 1405. RURAL FIREFIGHTERS AND EMERGENCY PERSONNEL GRANTS.

       (a) Termination of Fiscal Year 2007 Funding.--Subsection 
     (c) of section 6405 of the Farm Security and Rural Investment 
     Act of 2002 (7 U.S.C. 2655) is amended by striking ``2007'' 
     and inserting ``2006''.
       (b) Cancellation of Unobligated Prior-Year Funds.--The 
     authority to obligate funds previously made available under 
     such section for a fiscal year and unobligated as of October 
     1, 2006, is hereby cancelled effective on that date.
                          Subtitle E--Research

     SEC. 1501. INITIATIVE FOR FUTURE FOOD AND AGRICULTURE 
                   SYSTEMS.

       (a) Termination of Fiscal Year 2007, 2008, and 2009 
     Transfers.--Subsection (b)(3)(D) of section 401 of the 
     Agricultural Research, Extension, and Education Reform Act of 
     1998 (7

[[Page H12642]]

     U.S.C. 7621) is amended by striking ``2006'' and inserting 
     ``2009''.
       (b) Termination of Multi-Year Availability of Fiscal Year 
     2006 Funds.--Paragraph (6) of subsection (f) of such section 
     is amended to read as follows:
       ``(6) Availability of funds.--
       ``(A) Two-year availability.--Except as provided in 
     subparagraph (B), funds for grants under this section shall 
     be available to the Secretary for obligation for a 2-year 
     period beginning on the date of the transfer of the funds 
     under subsection (b).
       ``(B) Exception for fiscal year 2006 transfer.--In the case 
     of the funds required to be transferred by subsection 
     (b)(3)(C), the funds shall be available to the Secretary for 
     obligation for the 1-year period beginning on October 1, 
     2005.''.
           TITLE II--HOUSING AND DEPOSIT INSURANCE PROVISIONS
                   Subtitle A--FHA Asset Disposition

     SEC. 2002. DEFINITIONS.

       For purposes of this subtitle, the following definitions 
     shall apply:
       (1) The term ``affordability requirements'' means any 
     requirements or restrictions imposed by the Secretary, at the 
     time of sale, on a multifamily real property or a multifamily 
     loan, such as use restrictions, rent restrictions, and 
     rehabilitation requirements.
       (2) The term ``discount sale'' means the sale of a 
     multifamily real property in a transaction, such as a 
     negotiated sale, in which the sale price is lower than the 
     property market value and is set outside of a competitive 
     bidding process that has no affordability requirements.
       (3) The term ``discount loan sale'' means the sale of a 
     multifamily loan in a transaction, such as a negotiated sale, 
     in which the sale price is lower than the loan market value 
     and is set outside of a competitive bidding process that has 
     no affordability requirements.
       (4) The term ``loan market value'' means the value of a 
     multifamily loan, without taking into account any 
     affordability requirements.
       (5) The term ``multifamily real property'' means any rental 
     or cooperative housing project of 5 or more units owned by 
     the Secretary that prior to acquisition by the Secretary was 
     security for a loan or loans insured under title II of the 
     National Housing Act.
       (6) The term ``multifamily loan'' means a loan held by the 
     Secretary and secured by a multifamily rental or cooperative 
     housing project of 5 or more units that was formerly insured 
     under title II of the National Housing Act.
       (7) The term ``property market value'' means the value of a 
     multifamily real property for its current use, without taking 
     into account any affordability requirements.
       (8) The term ``Secretary'' means the Secretary of Housing 
     and Urban Development.

     SEC. 2003. APPROPRIATED FUNDS REQUIREMENT FOR BELOW-MARKET 
                   SALES.

       (a) Discount Sales.--Notwithstanding any other provision of 
     law, except for affordability requirements for the elderly 
     and disabled required by statute, disposition by the 
     Secretary of a multifamily real property during fiscal years 
     2006 through 2010 through a discount sale under sections 
     207(l) or 246 of the National Housing Act (12 U.S.C. 1713(l), 
     1715z-11), section 203 of the Housing and Community 
     Development Amendments of 1978 (12 U.S.C. 1701z-11), or 
     section 204 of the Departments of Veterans Affairs and 
     Housing and Urban Development, and Independent Agencies 
     Appropriations Act, 1997 (12 U.S.C. 1715z-11a), shall be 
     subject to the availability of appropriations to the extent 
     that the property market value exceeds the sale proceeds. If 
     the multifamily real property is sold, during such fiscal 
     years, for an amount equal to or greater than the property 
     market value then the transaction is not subject to the 
     availability of appropriations.
       (b) Discount Loan Sales.--Notwithstanding any other 
     provision of law and in accordance with the Federal Credit 
     Reform Act of 1990 (2 U.S.C. 661 et seq.), a discount loan 
     sale during fiscal years 2006 through 2010 under section 
     207(k) of the National Housing Act (12 U.S.C. 1713(k)), 
     section 203(k) of the Housing and Community Development 
     Amendments of 1978 (12 U.S.C. 1701z-11(k)), or section 204(a) 
     of the Departments of Veterans Affairs and Housing and Urban 
     Development, and Independent Agencies Appropriations Act, 
     1997 (12 U.S.C. 1715z-11a(a)), shall be subject to the 
     availability of appropriations to the extent that the loan 
     market alue exceeds the sale proceeds. If the multifamily 
     loan is sold, during such fiscal years, for an amount equal 
     to or greater than the loan market value then the transaction 
     is not subject to the availability of appropriations.
       (c) Applicability.--This section shall not apply to any 
     transaction that formally commences within one year prior to 
     the enactment of this section.

     SEC. 2004. UP-FRONT GRANTS.

       (a) 1997 Act.--Section 204(a) of the Departments of 
     Veterans Affairs and Housing And Urban Development, and 
     Independent Agencies Appropriations Act, 1997 (12 U.S.C. 
     1715z-11a(a))) is amended by adding at the end the following 
     new sentence: ``A grant provided under this subsection during 
     fiscal years 2006 through 2010 shall be available only to the 
     extent that appropriations are made in advance for such 
     purposes and shall not be derived from the General Insurance 
     Fund.''.
       (b) 1978 Act.--Section 203(f)(4) of the Housing and 
     Community Development Amendments of 1978 (12 USC 1701z-
     11(f)(4)) is amended by adding at the end the following new 
     sentence: ``This paragraph shall be effective during fiscal 
     years 2006 through 2010 only to the extent that such budget 
     authority is made available for use under this paragraph in 
     advance in appropriation Acts.''.
       (c) Applicability.--The amendments made by this section 
     shall not apply to any transaction that formally commences 
     within one year prior to the enactment of this section.
                     Subtitle B--Deposit Insurance

     SEC. 2101. SHORT TITLE.

       This subtitle may be cited as the ``Federal Deposit 
     Insurance Reform Act of 2005''.

     SEC. 2102. MERGING THE BIF AND SAIF.

       (a) In General.--
       (1) Merger.--The Bank Insurance Fund and the Savings 
     Association Insurance Fund shall be merged into the Deposit 
     Insurance Fund.
       (2) Disposition of assets and liabilities.--All assets and 
     liabilities of the Bank Insurance Fund and the Savings 
     Association Insurance Fund shall be transferred to the 
     Deposit Insurance Fund.
       (3) No separate existence.--The separate existence of the 
     Bank Insurance Fund and the Savings Association Insurance 
     Fund shall cease on the effective date of the merger thereof 
     under this section.
       (b) Repeal of Outdated Merger Provision.--Section 2704 of 
     the Deposit Insurance Funds Act of 1996 (12 U.S.C. 1821 note) 
     is repealed.
       (c) Effective Date.--This section shall take effect no 
     later than the first day of the first calendar quarter that 
     begins after the end of the 90-day period beginning on the 
     date of the enactment of this Act.

     SEC. 2103. INCREASE IN DEPOSIT INSURANCE COVERAGE.

       (a) In General.--Section 11(a)(1) of the Federal Deposit 
     Insurance Act (12 U.S.C. 1821(a)(1)) is amended--
       (1) by striking subparagraph (B) and inserting the 
     following new subparagraph:
       ``(B) Net amount of insured deposit.--The net amount due to 
     any depositor at an insured depository institution shall not 
     exceed the standard maximum deposit insurance amount as 
     determined in accordance with subparagraphs (C), (D), (E) and 
     (F) and paragraph (3).''; and
       (2) by adding at the end the following new subparagraphs:
       ``(E) Standard maximum deposit insurance amount defined.--
     For purposes of this Act, the term `standard maximum deposit 
     insurance amount' means $100,000, adjusted as provided under 
     subparagraph (F) after March 31, 2010.
       ``(F) Inflation adjustment.--
       ``(i) In general.--By April 1 of 2010, and the 1st day of 
     each subsequent 5-year period, the Board of Directors and the 
     National Credit Union Administration Board shall jointly 
     consider the factors set forth under clause (v), and, upon 
     determining that an inflation adjustment is appropriate, 
     shall jointly prescribe the amount by which the standard 
     maximum deposit insurance amount and the standard maximum 
     share insurance amount (as defined in section 207(k) of the 
     Federal Credit Union Act) applicable to any depositor at an 
     insured depository institution shall be increased by 
     calculating the product of--

       ``(I) $100,000; and
       ``(II) the ratio of the published annual value of the 
     Personal Consumption Expenditures Chain-Type Price Index (or 
     any successor index thereto), published by the Department of 
     Commerce, for the calendar year preceding the year in which 
     the adjustment is calculated under this clause, to the 
     published annual value of such index for the calendar year 
     preceding the date this subparagraph takes effect under the 
     Federal Deposit Insurance Reform Act of 2005.

     The values used in the calculation under subclause (II) shall 
     be, as of the date of the calculation, the values most 
     recently published by the Department of Commerce.
       ``(ii) Rounding.--If the amount determined under clause 
     (ii) for any period is not a multiple of $10,000, the amount 
     so determined shall be rounded down to the nearest $10,000.
       ``(iii) Publication and report to the congress.--Not later 
     than April 5 of any calendar year in which an adjustment is 
     required to be calculated under clause (i) to the standard 
     maximum deposit insurance amount and the standard maximum 
     share insurance amount under such clause, the Board of 
     Directors and the National Credit Union Administration Board 
     shall--

       ``(I) publish in the Federal Register the standard maximum 
     deposit insurance amount, the standard maximum share 
     insurance amount, and the amount of coverage under paragraph 
     (3)(A) and section 207(k)(3) of the Federal Credit Union Act, 
     as so calculated; and
       ``(II) jointly submit a report to the Congress containing 
     the amounts described in subclause (I).

       ``(iv) 6-month implementation period.--Unless an Act of 
     Congress enacted before July 1 of the calendar year in which 
     an adjustment is required to be calculated under clause (i) 
     provides otherwise, the increase in the standard maximum 
     deposit insurance amount and the standard maximum share 
     insurance amount shall take effect on January 1 of the year 
     immediately succeeding such calendar year.
       ``(v) Inflation adjustment consideration.--In making any 
     determination under clause (i) to increase the standard 
     maximum deposit insurance amount and the standard maximum 
     share insurance amount, the Board of Directors and the 
     National Credit Union Administration Board shall jointly 
     consider--

       ``(I) the overall state of the Deposit Insurance Fund and 
     the economic conditions affecting insured depository 
     institutions;

       ``(II) potential problems affecting insured depository 
     institutions; or
       ``(III) whether the increase will cause the reserve ratio 
     of the fund to fall below 1.15 percent of estimated insured 
     deposits.''.

       (b) Coverage for Certain Employee Benefit Plan Deposits.--
     Section 11(a)(1)(D) of the Federal Deposit Insurance Act (12 
     U.S.C. 1821(a)(1)(D)) is amended to read as follows:

[[Page H12643]]

       ``(D) Coverage for certain employee benefit plan 
     deposits.--
       ``(i) Pass-through insurance.--The Corporation shall 
     provide pass-through deposit insurance for the deposits of 
     any employee benefit plan.
       ``(ii) Prohibition on acceptance of benefit plan 
     deposits.--An insured depository institution that is not well 
     capitalized or adequately capitalized may not accept employee 
     benefit plan deposits.
       ``(iii) Definitions.--For purposes of this subparagraph, 
     the following definitions shall apply:

       ``(I) Capital standards.--The terms `well capitalized' and 
     `adequately capitalized' have the same meanings as in section 
     38.
       ``(II) Employee benefit plan.--The term `employee benefit 
     plan' has the same meaning as in paragraph (5)(B)(ii), and 
     includes any eligible deferred compensation plan described in 
     section 457 of the Internal Revenue Code of 1986.
       ``(III) Pass-through deposit insurance.--The term `pass-
     through deposit insurance' means, with respect to an employee 
     benefit plan, deposit insurance coverage based on the 
     interest of each participant, in accordance with regulations 
     issued by the Corporation.''.

       (c) Increased Amount of Deposit Insurance for Certain 
     Retirement Accounts.--Section 11(a)(3)(A) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1821(a)(3)(A)) is amended by 
     striking ``$100,000'' and inserting ``$250,000 (which amount 
     shall be subject to inflation adjustments as provided in 
     paragraph (1)(F), except that $250,000 shall be substituted 
     for $100,000 wherever such term appears in such paragraph)''.
       (h) Effective Date.--This section and the amendments made 
     by this section shall take effect on the date the final 
     regulations required under section 9(a)(2) take effect.

     SEC. 2104. SETTING ASSESSMENTS AND REPEAL OF SPECIAL RULES 
                   RELATING TO MINIMUM ASSESSMENTS AND FREE 
                   DEPOSIT INSURANCE.

       (a) Setting Assessments.--Section 7(b)(2) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1817(b)(2)) is amended--
       (1) by striking subparagraphs (A) and (B) and inserting the 
     following new subparagraphs:
       ``(A) In general.--The Board of Directors shall set 
     assessments for insured depository institutions in such 
     amounts as the Board of Directors may determine to be 
     necessary or appropriate, subject to subparagraph (D).
       ``(B) Factors to be considered.--In setting assessments 
     under subparagraph (A), the Board of Directors shall consider 
     the following factors:
       ``(i) The estimated operating expenses of the Deposit 
     Insurance Fund.
       ``(ii) The estimated case resolution expenses and income of 
     the Deposit Insurance Fund.
       ``(iii) The projected effects of the payment of assessments 
     on the capital and earnings of insured depository 
     institutions.
       ``(iv) The risk factors and other factors taken into 
     account pursuant to paragraph (1) under the risk-based 
     assessment system, including the requirement under such 
     paragraph to maintain a risk-based system.
       ``(v) Any other factors the Board of Directors may 
     determine to be appropriate.''; and
       (2) by inserting after subparagraph (C) the following new 
     subparagraph:
       ``(D) No discrimination based on size.--No insured 
     depository institution shall be barred from the lowest-risk 
     category solely because of size.''.
       (b) Assessment Recordkeeping Period Shortened.--Paragraph 
     (5) of section 7(b) of the Federal Deposit Insurance Act (12 
     U.S.C. 1817(b)) is amended to read as follows:
       ``(5) Depository institution required to maintain 
     assessment-related records.--Each insured depository 
     institution shall maintain all records that the Corporation 
     may require for verifying the correctness of any assessment 
     on the insured depository institution under this subsection 
     until the later of--
       ``(A) the end of the 3-year period beginning on the due 
     date of the assessment; or
       ``(B) in the case of a dispute between the insured 
     depository institution and the Corporation with respect to 
     such assessment, the date of a final determination of any 
     such dispute.''.
       (c) Increase in Fees for Late Assessment Payments.--
     Subsection (h) of section 18 of the Federal Deposit Insurance 
     Act (12 U.S.C. 1828(h)) is amended to read as follows:
       ``(h) Penalty for Failure to Timely Pay Assessments.--
       ``(1) In general.--Subject to paragraph (3), any insured 
     depository institution which fails or refuses to pay any 
     assessment shall be subject to a penalty in an amount of not 
     more than 1 percent of the amount of the assessment due for 
     each day that such violation continues.
       ``(2) Exception in case of dispute.--Paragraph (1) shall 
     not apply if--
       ``(A) the failure to pay an assessment is due to a dispute 
     between the insured depository institution and the 
     Corporation over the amount of such assessment; and
       ``(B) the insured depository institution deposits security 
     satisfactory to the Corporation for payment upon final 
     determination of the issue.
       ``(3) Special rule for small assessment amounts.--If the 
     amount of the assessment which an insured depository 
     institution fails or refuses to pay is less than $10,000 at 
     the time of such failure or refusal, the amount of any 
     penalty to which such institution is subject under paragraph 
     (1) shall not exceed $100 for each day that such violation 
     continues.
       ``(4) Authority to modify or remit penalty.--The 
     Corporation, in the sole discretion of the Corporation, may 
     compromise, modify or remit any penalty which the Corporation 
     may assess or has already assessed under paragraph (1) upon a 
     finding that good cause prevented the timely payment of an 
     assessment.''.
       (e) Statute of Limitations for Assessment Actions.--
     Subsection (g) of section 7 of the Federal Deposit Insurance 
     Act (12 U.S.C. 1817(g)) is amended to read as follows:
       ``(g) Assessment Actions.--
       ``(1) In general.--The Corporation, in any court of 
     competent jurisdiction, shall be entitled to recover from any 
     insured depository institution the amount of any unpaid 
     assessment lawfully payable by such insured depository 
     institution.
       ``(2) Statute of limitations.--The following provisions 
     shall apply to actions relating to assessments, 
     notwithstanding any other provision in Federal law, or the 
     law of any State:
       ``(A) Any action by an insured depository institution to 
     recover from the Corporation the overpaid amount of any 
     assessment shall be brought within 3 years after the date the 
     assessment payment was due, subject to the exception in 
     subparagraph (E).
       ``(B) Any action by the Corporation to recover from an 
     insured depository institution the underpaid amount of any 
     assessment shall be brought within 3 years after the date the 
     assessment payment was due, subject to the exceptions in 
     subparagraphs (C) and (E).
       ``(C) If an insured depository institution has made a false 
     or fraudulent statement with intent to evade any or all of 
     its assessment, the Corporation shall have until 3 years 
     after the date of discovery of the false or fraudulent 
     statement in which to bring an action to recover the 
     underpaid amount.
       ``(D) Except as provided in subparagraph (C), assessment 
     deposit information contained in records no longer required 
     to be maintained pursuant to subsection (b)(4) shall be 
     considered conclusive and not subject to change.
       ``(E) Any action for the underpaid or overpaid amount of 
     any assessment that became due before the amendment to this 
     subsection under the Federal Deposit Insurance Reform Act of 
     2005 took effect shall be subject to the statute of 
     limitations for assessments in effect at the time the 
     assessment became due.''.
       (f) Effective Date.--This section and the amendments made 
     by this section shall take effect on the date that the final 
     regulations required under section 9(a)(5) take effect.

     SEC. 2105. REPLACEMENT OF FIXED DESIGNATED RESERVE RATIO WITH 
                   RESERVE RANGE.

       (a) In General.--Section 7(b)(3) of the Federal Deposit 
     Insurance Act (12 U.S.C. 1817(b)(3)) is amended to read as 
     follows:
       ``(3) Designated reserve ratio.--
       ``(A) Establishment.--
       ``(i) In general.--Before the beginning of each calendar 
     year, the Board of Directors shall designate the reserve 
     ratio applicable with respect to the Deposit Insurance Fund 
     and publish the reserve ratio so designated.
       ``(ii) Rulemaking requirement.--Any change to the 
     designated reserve ratio shall be made by the Board of 
     Directors by regulation after notice and opportunity for 
     comment.
       ``(B) Range.--The reserve ratio designated by the Board of 
     Directors for any year--
       ``(i) may not exceed 1.5 percent of estimated insured 
     deposits; and
       ``(ii) may not be less than 1.15 percent of estimated 
     insured deposits.
       ``(C) Factors.--In designating a reserve ratio for any 
     year, the Board of Directors shall--
       ``(i) take into account the risk of losses to the Deposit 
     Insurance Fund in such year and future years, including 
     historic experience and potential and estimated losses from 
     insured depository institutions;
       ``(ii) take into account economic conditions generally 
     affecting insured depository institutions so as to allow the 
     designated reserve ratio to increase during more favorable 
     economic conditions and to decrease during less favorable 
     economic conditions, notwithstanding the increased risks of 
     loss that may exist during such less favorable conditions, as 
     determined to be appropriate by the Board of Directors;
       ``(iii) seek to prevent sharp swings in the assessment 
     rates for insured depository institutions; and
       ``(iv) take into account such other factors as the Board of 
     Directors may determine to be appropriate, consistent with 
     the requirements of this subparagraph.
       ``(D) Publication of proposed change in ratio.--In 
     soliciting comment on any proposed change in the designated 
     reserve ratio in accordance with subparagraph (A), the Board 
     of Directors shall include in the published proposal a 
     thorough analysis of the data and projections on which the 
     proposal is based.''.
       (c) Effective Date.--This section and the amendments made 
     by this section shall take effect on the date that the final 
     regulations required under section 9(a)(1) take effect.

     SEC. 2106. REQUIREMENTS APPLICABLE TO THE RISK-BASED 
                   ASSESSMENT SYSTEM.

       Section 7(b)(1) of the Federal Deposit Insurance Act (12 
     U.S.C. 1817(b)(1)) is amended by adding at the end the 
     following new subparagraphs:
       ``(E) Information concerning risk of loss and economic 
     conditions.--
       ``(i) Sources of information.--For purposes of determining 
     risk of losses at insured depository institutions and 
     economic conditions generally affecting depository 
     institutions, the Corporation shall collect information, as 
     appropriate, from all sources the Board of Directors 
     considers appropriate, such as reports of condition, 
     inspection reports, and other information from all Federal 
     banking agencies, any information available from State bank 
     supervisors, State insurance and securities regulators, the 
     Securities and Exchange Commission (including information 
     described in section 35), the Secretary of the Treasury, the 
     Commodity Futures Trading Commission, the Farm Credit 
     Administration, the Federal Trade Commission, any Federal 
     reserve bank or Federal home loan bank, and other regulators 
     of financial institutions, and

[[Page H12644]]

     any information available from credit rating entities, and 
     other private economic or business analysts.
       ``(ii) Consultation with federal banking agencies.--

       ``(I) In general.--Except as provided in subclause (II), in 
     assessing the risk of loss to the Deposit Insurance Fund with 
     respect to any insured depository institution, the 
     Corporation shall consult with the appropriate Federal 
     banking agency of such institution.
       ``(II) Treatment on aggregate basis.--In the case of 
     insured depository institutions that are well capitalized (as 
     defined in section 38) and, in the most recent examination, 
     were found to be well managed, the consultation under 
     subclause (I) concerning the assessment of the risk of loss 
     posed by such institutions may be made on an aggregate basis.

       ``(iii) Rule of construction.--No provision of this 
     paragraph shall be construed as providing any new authority 
     for the Corporation to require submission of information by 
     insured depository institutions to the Corporation.
       ``(F) Modifications to the risk-based assessment system 
     allowed only after notice and comment.--In revising or 
     modifying the risk-based assessment system at any time after 
     the date of the enactment of the Federal Deposit Insurance 
     Reform Act of 2005, the Board of Directors may implement such 
     revisions or modification in final form only after notice and 
     opportunity for comment.''.

     SEC. 2107. REFUNDS, DIVIDENDS, AND CREDITS FROM DEPOSIT 
                   INSURANCE FUND.

       (a) In General.--Subsection (e) of section 7 of the Federal 
     Deposit Insurance Act (12 U.S.C. 1817(e)) is amended to read 
     as follows:
       ``(e) Refunds, Dividends, and Credits.--
       ``(1) Refunds of overpayments.--In the case of any payment 
     of an assessment by an insured depository institution in 
     excess of the amount due to the Corporation, the Corporation 
     may--
       ``(A) refund the amount of the excess payment to the 
     insured depository institution; or
       ``(B) credit such excess amount toward the payment of 
     subsequent assessments until such credit is exhausted.
       ``(2) Dividends from excess amounts in deposit insurance 
     fund.--
       ``(A) Reserve ratio in excess of 1.5 percent of estimated 
     insured deposits.--If, at the end of a calendar year, the 
     reserve ratio of the Deposit Insurance Fund exceeds 1.5 
     percent of estimated insured deposits, the Corporation shall 
     declare the amount in the Fund in excess of the amount 
     required to maintain the reserve ratio at 1.5 percent of 
     estimated insured deposits, as dividends to be paid to 
     insured depository institutions.
       ``(B) Reserve ratio equal to or in excess of 1.35 percent 
     of estimated insured deposits and not more than 1.5 
     percent.--If, at the end of a calendar year, the reserve 
     ratio of the Deposit Insurance Fund equals or exceeds 1.35 
     percent of estimated insured deposits and is not more than 
     1.5 percent of such deposits, the Corporation shall declare 
     the amount in the Fund that is equal to 50 percent of the 
     amount in excess of the amount required to maintain the 
     reserve ratio at 1.35 percent of the estimated insured 
     deposits as dividends to be paid to insured depository 
     institutions.
       ``(C) Basis for distribution of dividends.--
       ``(i) In general.--Solely for the purposes of dividend 
     distribution under this paragraph, the Corporation shall 
     determine each insured depository institution's relative 
     contribution to the Deposit Insurance Fund (or any 
     predecessor deposit insurance fund) for calculating such 
     institution's share of any dividend declared under this 
     paragraph, taking into account the factors described in 
     clause (ii).
       ``(ii) Factors for distribution.--In implementing this 
     paragraph in accordance with regulations, the Corporation 
     shall take into account the following factors:

       ``(I) The ratio of the assessment base of an insured 
     depository institution (including any predecessor) on 
     December 31, 1996, to the assessment base of all eligible 
     insured depository institutions on that date.
       ``(II) The total amount of assessments paid on or after 
     January 1, 1997, by an insured depository institution 
     (including any predecessor) to the Deposit Insurance Fund 
     (and any predecessor deposit insurance fund).
       ``(III) That portion of assessments paid by an insured 
     depository institution (including any predecessor) that 
     reflects higher levels of risk assumed by such institution.
       ``(IV) Such other factors as the Corporation may determine 
     to be appropriate.

       ``(D) Notice and opportunity for comment.--The Corporation 
     shall prescribe by regulation, after notice and opportunity 
     for comment, the method for the calculation, declaration, and 
     payment of dividends under this paragraph.
       ``(E) Limitation.--The Board of Directors may suspend or 
     limit dividends paid under subparagraph (B), if the Board 
     determines in writing that--
       ``(i) a significant risk of losses to the Deposit Insurance 
     Fund exists over the next 1-year period; and
       ``(ii) it is likely that such losses will be sufficiently 
     high as to justify a finding by the Board that the reserve 
     ratio should temporarily be allowed--

       ``(I) to grow without requiring dividends under 
     subparagraph (B); or
       ``(II) to exceed the maximum amount established under 
     subsection (b)(3)(B)(i).

       ``(F) Considerations.--In making a determination under 
     subparagraph (E), the Board shall consider--
       ``(i) national and regional conditions and their impact on 
     insured depository institutions;
       ``(ii) potential problems affecting insured depository 
     institutions or a specific group or type of depository 
     institution;
       ``(iii) the degree to which the contingent liability of the 
     Corporation for anticipated failures of insured institutions 
     adequately addresses concerns over funding levels in the 
     Deposit Insurance Fund; and
       ``(iv) any other factors that the Board determines are 
     appropriate.
       ``(H) Review of determination.--
       ``(i) Annual review.--A determination to suspend or limit 
     dividends under subparagraph (E) shall be reviewed by the 
     Board of Directors annually.
       ``(ii) Action by board.--Based on each annual review under 
     clause (i), the Board of Directors shall either renew or 
     remove a determination to suspend or limit dividends under 
     subparagraph (E), or shall make a new determination in 
     accordance with this paragraph. Unless justified under the 
     terms of the renewal or new determination, the Corporation 
     shall be required to provide cash dividends under 
     subparagraph (A) or (B), as appropriate.
       ``(3) One-time credit based on total assessment base at 
     year-end 1996.--
       ``(A) In general.--Before the end of the 270-day period 
     beginning on the date of the enactment of the Federal Deposit 
     Insurance Reform Act of 2005, the Board of Directors shall, 
     by regulation after notice and opportunity for comment, 
     provide for a credit to each eligible insured depository 
     institution (or a successor insured depository institution), 
     based on the assessment base of the institution on December 
     31, 1996, as compared to the combined aggregate assessment 
     base of all eligible insured depository institutions, taking 
     into account such factors as the Board of Directors may 
     determine to be appropriate.
       ``(B) Credit limit.--The aggregate amount of credits 
     available under subparagraph (A) to all eligible insured 
     depository institutions shall equal the amount that the 
     Corporation could collect if the Corporation imposed an 
     assessment of 10.5 basis points on the combined assessment 
     base of the Bank Insurance Fund and the Savings Association 
     Insurance Fund as of December 31, 2001.
       ``(C) Eligible insured depository institution defined.--For 
     purposes of this paragraph, the term `eligible insured 
     depository institution' means any insured depository 
     institution that--
       ``(i) was in existence on December 31, 1996, and paid a 
     deposit insurance assessment prior to that date; or
       ``(ii) is a successor to any insured depository institution 
     described in clause (i).
       ``(D) Application of credits.--
       ``(i) In general.--Subject to clause (ii), the amount of a 
     credit to any eligible insured depository institution under 
     this paragraph shall be applied by the Corporation, subject 
     to subsection (b)(3)(E), to the assessments imposed on such 
     institution under subsection (b) that become due for 
     assessment periods beginning after the effective date of 
     regulations prescribed under subparagraph (A).
       ``(ii) Temporary restriction on use of credits.--The amount 
     of a credit to any eligible insured depository institution 
     under this paragraph may not be applied to more than 90 
     percent of the assessments imposed on such institution under 
     subsection (b) that become due for assessment periods 
     beginning in fiscal years 2008, 2009, and 2010.
       ``(iii) Regulations.--The regulations prescribed under 
     subparagraph (A) shall establish the qualifications and 
     procedures governing the application of assessment credits 
     pursuant to clause (i).
       ``(E) Limitation on amount of credit for certain depository 
     institutions.--In the case of an insured depository 
     institution that exhibits financial, operational, or 
     compliance weaknesses ranging from moderately severe to 
     unsatisfactory, or is not adequately capitalized (as defined 
     in section 38) at the beginning of an assessment period, the 
     amount of any credit allowed under this paragraph against the 
     assessment on that depository institution for such period may 
     not exceed the amount calculated by applying to that 
     depository institution the average assessment rate on all 
     insured depository institutions for such assessment period.
       ``(F) Successor defined.--The Corporation shall define the 
     term `successor' for purposes of this paragraph, by 
     regulation, and may consider any factors as the Board may 
     deem appropriate.
       ``(4) Administrative review.--
       ``(A) In general.--The regulations prescribed under 
     paragraphs (2)(D) and (3) shall include provisions allowing 
     an insured depository institution a reasonable opportunity to 
     challenge administratively the amount of the credit or 
     dividend determined under paragraph (2) or (3) for such 
     institution.
       ``(B) Administrative review.--Any review under subparagraph 
     (A) of any determination of the Corporation under paragraph 
     (2) or (3) shall be final and not subject to judicial 
     review.''.
       (b) Definition of Reserve Ratio.--Section 3(y) of the 
     Federal Deposit Insurance Act (12 U.S.C. 1813(y)) (as amended 
     by section 2105(b) of this subtitle) is amended by adding at 
     the end the following new paragraph:
       ``(3) Reserve ratio.--The term `reserve ratio', when used 
     with regard to the Deposit Insurance Fund other than in 
     connection with a reference to the designated reserve ratio, 
     means the ratio of the net worth of the Deposit Insurance 
     Fund to the value of the aggregate estimated insured 
     deposits.''.

     SEC. 2108. DEPOSIT INSURANCE FUND RESTORATION PLANS.

       Section 7(b)(3) of the Federal Deposit Insurance Act (12 
     U.S.C. 1817(b)(3)) (as amended by section 2105(a) of this 
     subtitle) is amended by adding at the end the following new 
     subparagraph:
       ``(E) Dif restoration plans.--
       ``(i) In general.--Whenever--

       ``(I) the Corporation projects that the reserve ratio of 
     the Deposit Insurance Fund will, within 6 months of such 
     determination, fall below the

[[Page H12645]]

     minimum amount specified in subparagraph (B)(ii) for the 
     designated reserve ratio; or
       ``(II) the reserve ratio of the Deposit Insurance Fund 
     actually falls below the minimum amount specified in 
     subparagraph (B)(ii) for the designated reserve ratio without 
     any determination under subclause (I) having been made,

     the Corporation shall establish and implement a Deposit 
     Insurance Fund restoration plan within 90 days that meets the 
     requirements of clause (ii) and such other conditions as the 
     Corporation determines to be appropriate.
       ``(ii) Requirements of restoration plan.--A Deposit 
     Insurance Fund restoration plan meets the requirements of 
     this clause if the plan provides that the reserve ratio of 
     the Fund will meet or exceed the minimum amount specified in 
     subparagraph (B)(ii) for the designated reserve ratio before 
     the end of the 5-year period beginning upon the 
     implementation of the plan (or such longer period as the 
     Corporation may determine to be necessary due to 
     extraordinary circumstances).
       ``(iii) Restriction on assessment credits.--As part of any 
     restoration plan under this subparagraph, the Corporation may 
     elect to restrict the application of assessment credits 
     provided under subsection (e)(3) for any period that the plan 
     is in effect.
       ``(iv) Limitation on restriction.--Notwithstanding clause 
     (iii), while any restoration plan under this subparagraph is 
     in effect, the Corporation shall apply credits provided to an 
     insured depository institution under subsection (e)(3) 
     against any assessment imposed on the institution for any 
     assessment period in an amount equal to the lesser of--

       ``(I) the amount of the assessment; or
       ``(II) the amount equal to 3 basis points of the 
     institution's assessment base.

       ``(v) Transparency.--Not more than 30 days after the 
     Corporation establishes and implements a restoration plan 
     under clause (i), the Corporation shall publish in the 
     Federal Register a detailed analysis of the factors 
     considered and the basis for the actions taken with regard to 
     the plan.''.

     SEC. 2109. REGULATIONS REQUIRED.

       (a) In General.--Not later than 270 days after the date of 
     the enactment of this Act, the Board of Directors of the 
     Federal Deposit Insurance Corporation shall prescribe final 
     regulations, after notice and opportunity for comment--
       (1) designating the reserve ratio for the Deposit Insurance 
     Fund in accordance with section 7(b)(3) of the Federal 
     Deposit Insurance Act (as amended by section 2105 of this 
     subtitle);
       (2) implementing increases in deposit insurance coverage in 
     accordance with the amendments made by section 2103 of this 
     subtitle;
       (3) implementing the dividend requirement under section 
     7(e)(2) of the Federal Deposit Insurance Act (as amended by 
     section 2107 of this subtitle);
       (4) implementing the 1-time assessment credit to certain 
     insured depository institutions in accordance with section 
     7(e)(3) of the Federal Deposit Insurance Act, as amended by 
     section 2107 of this subtitle, including the qualifications 
     and procedures under which the Corporation would apply 
     assessment credits; and
       (5) providing for assessments under section 7(b) of the 
     Federal Deposit Insurance Act, as amended by this subtitle.
       (b) Transition Provisions.--
       (1) Continuation of existing assessment regulations.--No 
     provision of this subtitle or any amendment made by this 
     subtitle shall be construed as affecting the authority of the 
     Corporation to set or collect deposit insurance assessments 
     pursuant to any regulations in effect before the effective 
     date of the final regulations prescribed under subsection 
     (a).
       (2) Treatment of dif members under existing regulations.--
     As of the date of the merger of the Bank Insurance Fund and 
     the Savings Association Insurance Fund pursuant to section 
     2102, the assessment regulations in effect immediately before 
     the date of the enactment of this Act shall continue to apply 
     to all members of the Deposit Insurance Fund, until such 
     regulations are modified by the Corporation, notwithstanding 
     that such regulations may refer to ``Bank Insurance Fund 
     members'' or ``Savings Association Insurance Fund members''.
       TITLE III--DIGITAL TELEVISION TRANSITION AND PUBLIC SAFETY

     SEC. 3001. SHORT TITLE; DEFINITION.

       (a) Short Title.--This title may be cited as the ``Digital 
     Television Transition and Public Safety Act of 2005''.
       (b) Definition.--As used in this Act, the term ``Assistant 
     Secretary'' means the Assistant Secretary for Communications 
     and Information of the Department of Commerce.

     SEC. 3002. ANALOG SPECTRUM RECOVERY: FIRM DEADLINE.

       (a) Amendments.--Section 309(j)(14) of the Communications 
     Act of 1934 (47 U.S.C. 309(j)(14)) is amended--
       (1) in subparagraph (A)--
       (A) by inserting ``full-power'' before ``television 
     broadcast license''; and
       (B) by striking ``December 31, 2006'' and inserting 
     ``February 17, 2009'';
       (2) by striking subparagraph (B);
       (3) in subparagraph (C)(i)(I), by striking ``or (B)'';
       (4) in subparagraph (D), by striking ``subparagraph 
     (C)(i)'' and inserting ``subparagraph (B)(i)''; and
       (5) by redesignating subparagraphs (C) and (D) as 
     subparagraphs (B) and (C), respectively.
       (b) Terminations of Analog Licenses and Broadcasting.--The 
     Federal Communications Commission shall take such actions as 
     are necessary--
       (1) to terminate all licenses for full-power television 
     stations in the analog television service, and to require the 
     cessation of broadcasting by full-power stations in the 
     analog television service, by February 18, 2009; and
       (2) to require by February 18, 2009, that all broadcasting 
     by Class A stations, whether in the analog television service 
     or digital television service, and all broadcasting by full-
     power stations in the digital television service, occur only 
     on channels between channels 2 and 36, inclusive, or 38 and 
     51, inclusive (between frequencies 54 and 698 megahertz, 
     inclusive).
       (c) Conforming Amendments.--
       (1) Section 337(e) of the Communications Act of 1934 (47 
     U.S.C. 337(e)) is amended--
       (A) in paragraph (1)--
       (i) by striking ``channels 60 to 69'' and inserting 
     ``channels 52 to 69'';
       (ii) by striking ``person who'' and inserting ``full-power 
     television station licensee that'';
       (iii) by striking ``746 and 806 megahertz'' and inserting 
     ``698 and 806 megahertz''; and
       (iv) by striking ``the date on which the digital television 
     service transition period terminates, as determined by the 
     Commission'' and inserting ``February 17, 2009'';
       (B) in paragraph (2), by striking ``746 megahertz'' and 
     inserting ``698 megahertz''; and

     SEC. 3003. AUCTION OF RECOVERED SPECTRUM.

       (a) Deadline for Auction.--Section 309(j) of the 
     Communications Act of 1934 (47 U.S.C. 309(j)) is amended--
       (1) by redesignating the second paragraph (15) of such 
     section (as added by section 203(b) of the Commercial 
     Spectrum Enhancement Act (P.L. 108-494; 118 Stat. 3993)), as 
     paragraph (16) of such section; and
       (2) in the first paragraph (15) of such section (as added 
     by section 3(a) of the Auction Reform Act of 2002 (P.L. 107-
     195; 116 Stat. 716)), by adding at the end of subparagraph 
     (C) the following new clauses:
       ``(v) Additional deadlines for recovered analog spectrum.--
     Notwithstanding subparagraph (B), the Commission shall 
     conduct the auction of the licenses for recovered analog 
     spectrum by commencing the bidding not later than January 28, 
     2008, and shall deposit the proceeds of such auction in 
     accordance with paragraph (8)(E)(ii) not later than June 30, 
     2008.
       ``(vi) Recovered analog spectrum.--For purposes of clause 
     (v), the term `recovered analog spectrum' means the spectrum 
     between channels 52 and 69, inclusive (between frequencies 
     698 and 806 megahertz, inclusive) reclaimed from analog 
     television service broadcasting under paragraph (14), other 
     than--

       ``(I) the spectrum required by section 337 to be made 
     available for public safety services; and
       ``(II) the spectrum auctioned prior to the date of 
     enactment of the Digital Television Transition and Public 
     Safety Act of 2005.''.

       (b) Extension of Auction Authority.--Section 309(j)(11) of 
     such Act (47 U.S.C. 309(j)(11)) is amended by striking 
     ``2007'' and inserting ``2011''.

     SEC. 3004. RESERVATION OF AUCTION PROCEEDS.

       Section 309(j)(8) of the Communications Act of 1934 (47 
     U.S.C. 309(j)(8)) is amended--
       (1) in subparagraph (A), by striking ``subparagraph (B) or 
     subparagraph (D)'' and inserting ``subparagraphs (B), (D), 
     and (E)'';
       (2) in subparagraph (C)(i), by inserting before the 
     semicolon at the end the following: ``, except as otherwise 
     provided in subparagraph (E)(ii)''; and
       (3) by adding at the end the following new subparagraph:
       ``(E) Transfer of receipts.--
       ``(i) Establishment of fund.--There is established in the 
     Treasury of the United States a fund to be known as the 
     Digital Television Transition and Public Safety Fund.
       ``(ii) Proceeds for funds.--Notwithstanding subparagraph 
     (A), the proceeds (including deposits and upfront payments 
     from successful bidders) from the use of a competitive 
     bidding system under this subsection with respect to 
     recovered analog spectrum shall be deposited in the Digital 
     Television Transition and Public Safety Fund.
       ``(iii) Transfer of amount to treasury.--On September 30, 
     2009, the Secretary shall transfer $7,363,000,000 from the 
     Digital Television Transition and Public Safety Fund to the 
     general fund of the Treasury.
       ``(iv) Recovered analog spectrum.--For purposes of clause 
     (i), the term `recovered analog spectrum' has the meaning 
     provided in paragraph (15)(C)(vi).''.

     SEC. 3005. DIGITAL-TO-ANALOG CONVERTER BOX PROGRAM.

       (a) Creation of Program.--The Assistant Secretary shall--
       (1) implement and administer a program through which 
     households in the United States may obtain coupons that can 
     be applied toward the purchase of digital-to-analog converter 
     boxes; and
       (2) make payments of not to exceed $990,000,000, in the 
     aggregate, through fiscal year 2009 to carry out that program 
     from the Digital Television Transition and Public Safety Fund 
     established under section 309(j)(8)(E) of the Communications 
     Act of 1934 (47 U.S.C. 309(j)(8)(E).
       (b) Credit.--The Assistant Secretary may borrow from the 
     Treasury beginning on October 1, 2006 such sums as may be 
     necessary, but not to exceed $1,500,000,000, to implement 
     this section. The Assistant Secretary shall reimburse the 
     Treasury, without interest, as funds are deposited into the 
     Digital Television Transition and Public Safety Fund.
       (c) Program Specifications.--
       (1) Limitations.--
       (A) Two-per-household maximum.--A household may obtain 
     coupons by making a request as required by the regulations 
     under this section between January 1, 2008, and March 31, 
     2009, inclusive. The Assistant Secretary shall ensure that 
     each requesting household receives,

[[Page H12646]]

     via the United States Postal Service, no more than two 
     coupons.
       (B) No combinations of coupons.--Two coupons may not be 
     used in combination toward the purchase of a single digital-
     to-analog converter box.
       (C) Duration.--All coupons shall expire 3 months after 
     issuance.
       (2) Distribution of coupons.--The Assistant Secretary shall 
     expend not more than $100,000,000 on administrative expenses 
     and shall ensure that the sum of--
       (A) all administrative expenses for the program, including 
     not more than $5,000,000 for consumer education concerning 
     the digital television transition and the availability of the 
     digital-to-analog converter box program; and
       (B) the total maximum value of all the coupons redeemed, 
     and issued but not expired, does not exceed $990,000,000.
       (3) Use of additional amount.--If the Assistant Secretary 
     transmits to the Committee on Energy and Commerce of the 
     House of Representatives and Committee on Commerce, Science, 
     and Transportation of the Senate a statement certifying that 
     the sum permitted to be expended under paragraph (2) will be 
     insufficient to fulfill the requests for coupons from 
     eligible households--
       (A) paragraph (2) shall be applied--
       (i) by substituting ``$160,000,000'' for ``$100,000,000''; 
     and
       (ii) by substituting ``$1,500,000,000'' for 
     ``$990,000,000'';
       (B) subsection (a)(2) shall be applied by substituting 
     ``$1,500,000,000'' for ``$990,000,000''; and
       (C) the additional amount permitted to be expended shall be 
     available 60 days after the Assistant Secretary sends such 
     statement.
       (4) Coupon value.--The value of each coupon shall be $40.
       (e) Definition of Digital-to-Analog Converter Box.--For 
     purposes of this section, the term ``digital-to-analog 
     converter box'' means a stand-alone device that does not 
     contain features or functions except those necessary to 
     enable a consumer to convert any channel broadcast in the 
     digital television service into a format that the consumer 
     can display on television receivers designed to receive and 
     display signals only in the analog television service, but 
     may also include a remote control device.

     SEC. 3006. PUBLIC SAFETY INTEROPERABLE COMMUNICATIONS.

       (a) Creation of Program.--The Assistant Secretary, in 
     consultation with the Secretary of the Department of Homeland 
     Security--
       (1) may take such administrative action as is necessary to 
     establish and implement a grant program to assist public 
     safety agencies in the acquisition of, deployment of, or 
     training for the use of interoperable communications systems 
     that utilize, or enable interoperability with communications 
     systems that can utilize, reallocated public safety spectrum 
     for radio communication; and
       (2) shall make payments of not to exceed $1,000,000,000, in 
     the aggregate, through fiscal year 2010 to carry out that 
     program from the Digital Television Transition and Public 
     Safety Fund established under section 309(j)(8)(E) of the 
     Communications Act of 1934 (47 U.S.C. 309(j)(8)(E).
       (b) Credit.--The Assistant Secretary may borrow from the 
     Treasury beginnong on October 1, 2006 such sums as may be 
     necessary, but not to exceed $1,000,000,000, to implement 
     this section. The Assistant Secretary shall reimburse the 
     Treasury, without interest, as funds are deposited into the 
     Digital Television Transition and Public Safety Fund.
       (c) Condition of Grants.--In order to obtain a grant under 
     the grant program, a public safety agency shall agree to 
     provide, from non-Federal sources, not less than 20 percent 
     of the costs of acquiring and deploying the interoperable 
     communications systems funded under the grant program.
       (d) Definitions.--For purposes of this section:
       (1) Public safety agency.--The term ``public safety 
     agency'' means any State, local, or tribal government entity, 
     or nongovernmental organization authorized by such entity, 
     whose sole or principal purpose is to protect the safety of 
     life, health, or property.
       (2) Interoperable communications systems.--The term 
     ``interoperable communications systems'' means communications 
     systems which enable public safety agencies to share 
     information amongst local, State, Federal, and tribal public 
     safety agencies in the same area via voice or data signals.
       (3) Reallocated public safety spectrum.--The term 
     ``reallocated public safety spectrum'' means the bands of 
     spectrum located at 764-776 megahertz and 794-806 megahertz, 
     inclusive.

     SEC. 3007. NYC 9/11 DIGITAL TRANSITION.

       (a) Funds Available.--From the Digital Television 
     Transition and Public Safety Fund established under section 
     309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 
     309(j)(8)(E)) the Assistant Secretary shall make payments of 
     not to exceed $30,000,000, in the aggregate, which shall be 
     available to carry out this section for fiscal years 2007 
     through 2008. The Assistant Secretary may borrow from the 
     Treasury beginning October 1, 2006 such sums as may be 
     necessary not to exceed $30,000,000 to implement and 
     administer the program in accordance with this section. The 
     Assistant Secretary shall reimburse the Treasury, without 
     interest, as funds are deposited into the Digital Television 
     Transition and Public Safety Fund.
       (b) Use of Funds.--The sums available under subsection (a) 
     shall be made available by the Assistant Secretary by grant 
     to be used to reimburse the Metropolitan Television Alliance 
     for costs incurred in the design and deployment of a 
     temporary digital television broadcast system to ensure that, 
     until a permanent facility atop the Freedom Tower is 
     constructed, the members of the Metropolitan Television 
     Alliance can provide the New York City area with an adequate 
     digital television signal as determined by the Federal 
     Communications Commission.
       (d) Definitions.--For purposes of this section:
       (1) Metropolitan television alliance.--The term 
     ``Metropolitan Television Alliance'' means the organization 
     formed by New York City television broadcast station 
     licensees to locate new shared facilities as a result of the 
     attacks on September 11, 2001 and the loss of use of shared 
     facilities that housed broadcast equipment.
       (2) New york city area.--The term ``New York City area'' 
     means the five counties comprising New York City and counties 
     of northern New Jersey in immediate proximity to New York 
     City (Bergen, Essex, Union, and Hudson Counties).

     SEC. 3008. LOW-POWER TELEVISION AND TRANSLATOR DIGITAL-TO-
                   ANALOG CONVERSION.

       (a) Creation of Program.--The Assistant Secretary shall 
     make payments of not to exceed $10,000,000, in the aggregate, 
     during the fiscal year 2008 and 2009 period from the Digital 
     Television Transition and Public Safety Fund established 
     under section 309(j)(8)(E) of the Communications Act of 1934 
     (47 U.S.C. 309(j)(8)(E)) to implement and administer a 
     program through which each eligible low-power television 
     station may receive compensation toward the cost of the 
     purchase of a digital-to-analog conversion device that 
     enables it to convert the incoming digital signal of its 
     corresponding full-power television station to analog format 
     for transmission on the low-power television station's analog 
     channel. An eligible low-power television station may receive 
     such compensation only if it submits a request for such 
     compensation on or before February 17, 2009. Priority 
     compensation shall be given to eligible low-power television 
     stations in which the license is held by a non-profit 
     corporation and eligible low-power television stations that 
     serve rural areas of fewer than 10,000 viewers.
       (b) Credit.--The Assistant Secretary may borrow from the 
     Treasury beginning October 1, 2006 such sums as may be 
     necessary, but not to exceed $10,000,000, to implement this 
     section. The Assistant Secretary shall reimburse the 
     Treasury, without interest, as funds are deposited into the 
     Digital Television Transition and Public Safety Fund.
       (c) Eligible Stations.--For purposes of this section, the 
     term ``eligible low-power television station'' means a low-
     power television broadcast station, Class A television 
     station, television translator station, or television booster 
     station--
       (1) that is itself broadcasting exclusively in analog 
     format; and
       (2) that has not purchased a digital-to-analog conversion 
     device prior to the date of enactment of the Digital 
     Television Transition and Public Safety Act of 2005.

     SEC. 3009. LOW-POWER TELEVISION AND TRANSLATOR UPGRADE 
                   PROGRAM.

       (a) Establishment.--The Assistant Secretary shall make 
     payments of not to exceed $65,000,000, in the aggregate, 
     during fiscal year 2009 from the Digital Television 
     Transition and Public Safety Fund established under section 
     309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 
     309(j)(8)(E)) to implement and administer a program through 
     which each licensee of an eligible low-power television 
     station may receive reimbursement for equipment to upgrade 
     low-power television stations from analog to digital in 
     eligible rural communities, as that term is defined in 
     section 610(b)(2) of the Rural Electrification Act of 1937 
     (7 U.S.C. 950bb(b)(2)). Such reimbursements shall be 
     issued to eligible stations no earlier than October 1, 
     2010. Priority reimbursements shall be given to eligible 
     low-power television stations in which the license is held 
     by a non-profit corporation and eligible low-power 
     television stations that serve rural areas of fewer than 
     10,000 viewers.
       (b) Eligible Stations.--For purposes of this section, the 
     term ``eligible low-power television station'' means a low-
     power television broadcast station, Class A television 
     station, television translator station, or television booster 
     station--
       (1) that is itself broadcasting exclusively in analog 
     format; and
       (2) that has not converted from analog to digital 
     operations prior to the date of enactment of the Digital 
     Television Transition and Public Safety Act of 2005.

     SEC. 3010. NATIONAL ALERT AND TSUNAMI WARNING PROGRAM.

       The Assistant Secretary shall make payments of not to 
     exceed $156,000,000, in the aggregate, during the fiscal year 
     2007 through 2012 period from the Digital Television 
     Transition and Public Safety Fund established under section 
     309(j)(8)(E) of the Communications Act of 1934 (47 U.S.C. 
     309(j)(8)(E)) to implement a unified national alert system 
     capable of alerting the public, on a national, regional, or 
     local basis to emergency situations by using a variety of 
     communications technologies. The Assistant Secretary shall 
     use $50,000,000 of such amounts to implement a tsunami 
     warning and coastal vulnerability program.

     SEC. 3011. ENHANCE 911.

       The Assistant Secretary shall make payments of not to 
     exceed $43,500,000, in the aggregate, from the Digital 
     Television Transition and Public Safety Fund established 
     under section 309(j)(8)(E) of the Communications Act of 1934 
     (47 U.S.C. 309(j)(8)(E)) to implement the ENHANCE 911 Act of 
     2004.

     SEC. 3012. ESSENTIAL AIR SERVICE PROGRAM.

       (a) In General.--If the amount appropriated to carry out 
     the essential air service program under subchapter II of 
     chapter 417 of title 49, United States Code, equals or 
     exceeds $110,000,000 for fiscal year 2007 or 2008, then the

[[Page H12647]]

     Secretary of Commerce shall make $15,000,000 available, from 
     the Digital Television Transition and Public Safety Fund 
     established by section 309(j)(8)(E) of the Communications Act 
     of 1934 (47 U.S.C. 309(j)(8)(E)), to the Secretary of 
     Transportation for use in carrying out the essential air 
     service program for that fiscal year.
       (b) Application With Other Funds.--Amounts made available 
     under subsection (a) for any fiscal year shall be in addition 
     to any amounts--
       (1) appropriated for that fiscal year; or
       (2) derived from fees collected pursuant to section 
     45301(a)(1) of title 49, United States Code, that are made 
     available for obligation and expenditure to carry out the 
     essential air service program for that fiscal year.
       (c) Advances.--The Secretary of Transportation may borrow 
     from the Treasury such sums as may be necessary, but not to 
     exceed $30,000,000 on a temporary and reimbursable basis to 
     implement subsection (a). The Secretary of Transportation 
     shall reimburse the Treasury, without interest, as funds are 
     deposited into the Digital Television Transition and Public 
     Safety Fund under section 309(j)(8)(E) of the Communications 
     Act of 1934 (47 U.S.C. 309(j)(8)(E)) and made available to 
     the Secretary under subsection (a).

     SEC. 3014. SUPPLEMENTAL LICENSE FEES.

       In addition to any fees assessed under the Communications 
     Act of 1934 (47 U.S.C. 151 et seq.), the Federal 
     Communications Commission shall assess extraordinary fees for 
     licenses in the aggregate amount of $10,000,000, which shall 
     be deposited in the Treasury during fiscal year 2006 as 
     offsetting receipts.
                  TITLE IV--TRANSPORTATION PROVISIONS

     SEC. 4001. EXTENSION OF VESSEL TONNAGE DUTIES.

       (a) Extension of Duties.--Section 36 of the Act entitled 
     ``An Act to provide revenue, equalize duties and encourage 
     the industries of the United States, and for other 
     purposes'', approved August 5, 1909 (36 Stat. 111; 46 U.S.C. 
     App. 121), is amended--
       (1) by striking ``9 cents per ton'' and all that follows 
     through ``2002,'' the first place it appears and inserting 
     ``4.5 cents per ton, not to exceed in the aggregate 22.5 
     cents per ton in any one year, for fiscal years 2006 through 
     2010,''; and
       (2) by striking ``27 cents per ton'' and all that follows 
     through ``2002,'' and inserting ``13.5 cents per ton, not to 
     exceed 67.5 cents per ton per annum, for fiscal years 2006 
     through 2010,''.
       (b) Conforming Amendment.--The Act entitled ``An Act 
     concerning tonnage duties on vessels entering otherwise than 
     by sea'', approved March 8, 1910 (36 Stat. 234; 46 U.S.C. 
     App. 132), is amended by striking ``9 cents per ton'' and all 
     that follows through ``and 2 cents'' and inserting ``4.5 
     cents per ton, not to exceed in the aggregate 22.5 cents per 
     ton in any one year, for fiscal years 2006 through 2010, and 
     2 cents''.
                           TITLE V--MEDICARE
               Subtitle A--Provisions Relating to Part A

     SEC. 5001. HOSPITAL QUALITY IMPROVEMENT.

       (a) Submission of Hospital Data.--Section 1886(b)(3)(B) of 
     the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)) is 
     amended--
       (1) in clause (i)--
       (A) in subclause (XIX), by striking ``2007'' and inserting 
     ``2006''; and
       (B) in subclause (XX), by striking ``for fiscal year 2008 
     and each subsequent fiscal year,'' and inserting ``for each 
     subsequent fiscal year, subject to clause (viii),'';
       (2) in clause (vii)--
       (A) in subclause (I), by striking ``for each of fiscal 
     years 2005 through 2007'' and inserting ``for fiscal years 
     2005 and 2006''; and
       (B) in subclause (II), by striking ``Each'' and inserting 
     ``For fiscal years 2005 and 2006, each''; and
       (3) by adding at the end the following new clauses:
       ``(viii)(I) For purposes of clause (i) for fiscal year 2007 
     and each subsequent fiscal year, in the case of a subsection 
     (d) hospital that does not submit, to the Secretary in 
     accordance with this clause, data required to be submitted on 
     measures selected under this clause with respect to such a 
     fiscal year, the applicable percentage increase under clause 
     (i) for such fiscal year shall be reduced by 2.0 percentage 
     points. Such reduction shall apply only with respect to the 
     fiscal year involved and the Secretary shall not take into 
     account such reduction in computing the applicable percentage 
     increase under clause (i) for a subsequent fiscal year, and 
     the Secretary and the Medicare Payment Advisory Commission 
     shall carry out the requirements under section 5001(b) of the 
     Deficit Reduction Act of 2005.
       ``(II) Each subsection (d) hospital shall submit data on 
     measures selected under this clause to the Secretary in a 
     form and manner, and at a time, specified by the Secretary 
     for purposes of this clause.
       ``(III) The Secretary shall expand, beyond the measures 
     specified under clause (vii)(II) and consistent with the 
     succeeding subclauses, the set of measures that the Secretary 
     determines to be appropriate for the measurement of the 
     quality of care furnished by hospitals in inpatient settings.
       ``(IV) Effective for payments beginning with fiscal year 
     2007, in expanding the number of measures under subclause 
     (III), the Secretary shall begin to adopt the baseline set of 
     performance measures as set forth in the November 2005 report 
     by the Institute of Medicine of the National Academy of 
     Sciences under section 238(b) of the Medicare Prescription 
     Drug, Improvement, and Modernization Act of 2003.
       ``(V) Effective for payments beginning with fiscal year 
     2008, the Secretary shall add other measures that reflect 
     consensus among affected parties and, to the extent feasible 
     and practicable, shall include measures set forth by one or 
     more national consensus building entities.
       ``(VI) For purposes of this clause and clause (vii), the 
     Secretary may replace any measures or indicators in 
     appropriate cases, such as where all hospitals are 
     effectively in compliance or the measures or indicators have 
     been subsequently shown not to represent the best clinical 
     practice.
       ``(VII) The Secretary shall establish procedures for making 
     data submitted under this clause available to the public. 
     Such procedures shall ensure that a hospital has the 
     opportunity to review the data that are to be made public 
     with respect to the hospital prior to such data being made 
     public. The Secretary shall report quality measures of 
     process, structure, outcome, patients' perspectives on care, 
     efficiency, and costs of care that relate to services 
     furnished in inpatient settings in hospitals on the Internet 
     website of the Centers for Medicare & Medicaid Services.''.
       (b) Plan for Hospital Value Based Purchasing Program.--
       (1) In general.--The Secretary of Health and Human Services 
     shall develop a plan to implement a value based purchasing 
     program for payments under the Medicare program for 
     subsection (d) hospitals beginning with fiscal year 2009.
       (2) Details.--Such a plan shall include consideration of 
     the following issues:
       (A) The on-going development, selection, and modification 
     process for measures of quality and efficiency in hospital 
     inpatient settings.
       (B) The reporting, collection, and validation of quality 
     data.
       (C) The structure of value based payment adjustments, 
     including the determination of thresholds or improvements in 
     quality that would substantiate a payment adjustment, the 
     size of such payments, and the sources of funding for the 
     value based payments.
       (D) The disclosure of information on hospital performance.

     In developing such a plan, the Secretary shall consult with 
     relevant affected parties and shall consider experience with 
     such demonstrations that are relevant to the value based 
     purchasing program under this subsection.
       (3) Congressional report.--By not later than August 1, 
     2007, the Secretary of Health and Human Services shall submit 
     a report to Congress on the plan for the value based 
     purchasing program developed under this subsection.
       (4) MedPAC report on hospital value based purchasing 
     program.--
       (A) In general.--By not later than June 1, 2007, the 
     Medicare Payment Advisory Commission shall submit to Congress 
     a report that includes detailed recommendations on a 
     structure of value based payment adjustments for hospital 
     services under the Medicare program under title XVIII of the 
     Social Security Act.
       (B) Contents.--Such report shall include the following:
       (i) Determinations of the thresholds, the size of payments, 
     the sources of funds, and the relationship of payments to 
     improvement and attainment of quality.
       (ii) An analysis of hospital efficiency measures such as 
     costs per discharge, related services within an episode of 
     care including payments for physicians' services associated 
     with the discharge or episode of care.
       (iii) An identification of other changes that are needed 
     within the payment structure under section 1886(d) of the 
     Social Security Act (42 U.S.C. 1395ww(d)) to assure 
     consistency between such structure and the value based 
     payment program.
       (c) Quality Adjustment in DRG Payments for Certain Hospital 
     Acquired Infections.--
       (1) In general.--Section 1886(d)(4) of the Social Security 
     Act (42 U.S.C. 1395ww(d)(4)) is amended by adding at the end 
     the following new subparagraph:
       ``(D)(i) For discharges occurring on or after October 1, 
     2008, the diagnosis-related group to be assigned under this 
     paragraph for a discharge described in clause (ii) shall be a 
     diagnosis-related group that does not result in higher 
     payment based on the presence of a secondary diagnosis code 
     described in clause (iv).
       ``(ii) A discharge described in this clause is a discharge 
     which meets the following requirements:
       ``(I) The discharge includes a condition identified by a 
     diagnosis code selected under clause (iv) as a secondary 
     diagnosis.
       ``(II) But for clause (i), the discharge would have been 
     classified to a diagnosis-related group that results in a 
     higher payment based on the presence of a secondary diagnosis 
     code selected under clause (iv).
       ``(III) At the time of admission, no code selected under 
     clause (iv) was present.
       ``(iii) As part of the information required to be reported 
     by a hospital with respect to a discharge of an individual in 
     order for payment to be made under this subsection, for 
     discharges occurring on or after October 1, 2007, the 
     information shall include the secondary diagnosis of the 
     individual at admission.
       ``(iv) By not later than October 1, 2007, the Secretary 
     shall select diagnosis codes associated with at least two 
     conditions, each of which codes meets all of the following 
     requirements (as determined by the Secretary):
       ``(I) Cases described by such code have a high cost or high 
     volume, or both, under this title.
       ``(II) The code results in the assignment of a case to a 
     diagnosis-related group that has a higher payment when the 
     code is present as a secondary diagnosis.
       ``(III) The code describes such conditions that could 
     reasonably have been prevented through the application of 
     evidence-based guidelines.

     The Secretary may from time to time revise (through addition 
     or deletion of codes) the diagnosis codes selected under this 
     clause so long as there are diagnosis codes associated with 
     at least two conditions selected for discharges occurring 
     during any fiscal year.

[[Page H12648]]

       ``(v) In selecting and revising diagnosis codes under 
     clause (iv), the Secretary shall consult with the Centers for 
     Disease Control and Prevention and other appropriate 
     entities.
       ``(vi) Any change resulting from the application of this 
     subparagraph shall not be taken into account in adjusting the 
     weighting factors under subparagraph (C)(i) or in applying 
     budget neutrality under subparagraph (C)(iii).''.
       (2) No judicial review.--Section 1886(d)(7)(B) of such Act 
     (42 U.S.C. 1395ww(d)(7)(B)) is amended by inserting before 
     the period the following: ``, including the selection and 
     revision of codes under paragraph (4)(D)''.

     SEC. 5002. CLARIFICATION OF DETERMINATION OF MEDICAID PATIENT 
                   DAYS FOR DSH COMPUTATION.

       (a) In General.--Section 1886(d)(5)(F)(vi) of the Social 
     Security Act (42 U.S.C. 1395ww(d)(5)(F)(vi)) is amended by 
     adding after and below subclause (II) the following:

     ``In determining under subclause (II) the number of the 
     hospital's patient days for such period which consist of 
     patients who (for such days) were eligible for medical 
     assistance under a State plan approved under title XIX, the 
     Secretary may, to the extent and for the period the Secretary 
     determines appropriate, include patient days of patients not 
     so eligible but who are regarded as such because they receive 
     benefits under a demonstration project approved under title 
     XI.''.
       (b) Ratification and Prospective Application of Previous 
     Regulations.--
       (1) In general.--Subject to paragraph (2), regulations 
     described in paragraph (3), insofar as such regulations 
     provide for the treatment of individuals eligible for medical 
     assistance under a demonstration project approved under title 
     XI of the Social Security Act under section 1886(d)(5)(F)(vi) 
     of such Act, are hereby ratified, effective as of the date of 
     their respective promulgations.
       (2) No application to closed cost reports.--Paragraph (1) 
     shall not be applied in a manner that requires the reopening 
     of any cost reports which are closed as of the date of the 
     enactment of this Act.
       (3) Regulations described.--For purposes of paragraph (1), 
     the regulations described in this paragraph are as follows:
       (A) 2000 regulation.--Regulations promulgated on January 
     20, 2000, at 65 Federal Register 3136 et seq., including the 
     policy in such regulations regarding discharges occurring 
     prior to January 20, 2000.
       (B) 2003 regulation.--Regulations promulgated on August 1, 
     2003, at 68 Federal Register 45345 et seq.

     SEC. 5003. IMPROVEMENTS TO THE MEDICARE-DEPENDENT HOSPITAL 
                   (MDH) PROGRAM.

       (a) 5-Year Extension.--
       (1) Extension of Payment Methodology.--Section 
     1886(d)(5)(G) of the Social Security Act (42 U.S.C. 
     1395ww(d)(5)(G)) is amended--
       (A) in clause (i), by striking ``October 1, 2006'' and 
     inserting ``October 1, 2011''; and
       (B) in clause (ii)(II)--
       (i) by striking ``October 1, 2006'' and inserting ``October 
     1, 2011''; and
       (ii) by inserting ``or for discharges in the fiscal year'' 
     after ``for the cost reporting period''.
       (2) Conforming amendments.--
       (A) Extension of target amount.--Section 1886(b)(3)(D) of 
     such Act (42 U.S.C. 1395ww(b)(3)(D)) is amended--
       (i) in the matter preceding clause (i)--

       (I) by striking ``beginning'' and inserting ``occurring''; 
     and
       (II) by striking ``October 1, 2006'' and inserting 
     ``October 1, 2011''; and

       (ii) in clause (iv), by striking ``through fiscal year 
     2005'' and inserting ``through fiscal year 2011''.
       (B) Permitting hospitals to decline reclassification.--
     Section 13501(e)(2) of the Omnibus Budget Reconciliation Act 
     of 1993 (42 U.S.C. 1395ww note) is amended by striking 
     ``through fiscal year 2005'' and inserting ``through fiscal 
     year 2011''.
       (b) Option to Use 2002 as Base Year.--Section 1886(b)(3) of 
     such Act (42 U.S.C. 1395ww(b)(3)) is amended--
       (1) in subparagraph (D), by inserting ``subject to 
     subparagraph (K),'' after ``(d)(5)(G)),''; and
       (2) by adding at the end the following new subparagraph:
       ``(K)(i) With respect to discharges occurring on or after 
     October 1, 2006, in the case of a medicare-dependent, small 
     rural hospital, for purposes of applying subparagraph (D)--
       ``(I) there shall be substituted for the base cost 
     reporting period described in subparagraph (D)(i) the 12-
     month cost reporting period beginning during fiscal year 
     2002; and
       ``(II) any reference in such subparagraph to the `first 
     cost reporting period' described in such subparagraph is 
     deemed a reference to the first cost reporting period 
     beginning on or after October 1, 2006.
       ``(ii) This subparagraph shall only apply to a hospital if 
     the substitution described in clause (i)(I) results in an 
     increase in the target amount under subparagraph (D) for the 
     hospital.''.
       (c) Enhanced Payment for Amount by Which the Target Exceeds 
     the PPS Rate.--Section 1886(d)(5)(G)(ii)(II) of such Act (42 
     U.S.C. 1395ww(d)(5)(G)(iv)(II)) is amended by inserting ``(or 
     75 percent in the case of discharges occurring on or after 
     October 1, 2006)'' after ``50 percent''.
       (d) Enhanced Disproportionate Share Hospital (DSH) 
     Treatment for Medicare Dependent Hospitals.--Section 
     1886(d)(5)(F)(xiv)(II) of such Act (42 U.S.C. 
     1395ww(d)(5)(F)(xiv)(II)) is amended by inserting ``or, in 
     the case of discharges occurring on or after October 1, 2006, 
     as a medicare-dependent, small rural hospital under 
     subparagraph (G)(iv)'' before the period at the end.

     SEC. 5004. REDUCTION IN PAYMENTS TO SKILLED NURSING 
                   FACILITIES FOR BAD DEBT.

       (a) In General.--Section 1861(v)(1) of the Social Security 
     Act (42 U.S.C. 1395x(v)(1)) is amended by adding at the end 
     the following new subparagraph:
       ``(V) In determining such reasonable costs for skilled 
     nursing facilities with respect to cost reporting periods 
     beginning on or after October 1, 2005, the amount of bad 
     debts otherwise treated as allowed costs which are 
     attributable to the coinsurance amounts under this title for 
     individuals who are entitled to benefits under part A and--
       ``(i) are not described in section 1935(c)(6)(A)(ii) shall 
     be reduced by 30 percent of such amount otherwise allowable; 
     and
       ``(ii) are described in such section shall not be 
     reduced.''.
       (b) Technical Amendment.--Section 1861(v)(1)(T) of such Act 
     (42 U.S.C. 1395x(v)(1)(T)) is amended by striking ``section 
     1833(t)(5)(B)'' and inserting ``section 1833(t)(8)(B)''.

     SEC. 5005. EXTENDED PHASE-IN OF THE INPATIENT REHABILITATION 
                   FACILITY CLASSIFICATION CRITERIA.

       (a) In General.--Notwithstanding section 412.23(b)(2) of 
     title 42, Code of Federal Regulations, the Secretary of 
     Health and Human Services shall apply the applicable percent 
     specified in subsection (b) in the classification criterion 
     used under the IRF regulation (as defined in subsection (c)) 
     to determine whether a hospital or unit of a hospital is an 
     inpatient rehabilitation facility under the Medicare program 
     under title XVIII of the Social Security Act.
       (b) Applicable Percent.--For purposes of subsection (a), 
     the applicable percent specified in this subsection for cost 
     reporting periods--
       (1) beginning during the 12-month period beginning on July 
     1, 2006, is 60 percent;
       (2) beginning during the 12-month period beginning on July 
     1, 2007, is 65 percent; and
       (3) beginning on or after July 1, 2008, is 75 percent.
       (c) IRF Regulation.--For purposes of subsection (a), the 
     term ``IRF regulation'' means the rule published in the 
     Federal Register on May 7, 2004, entitled ``Medicare Program; 
     Final Rule; Changes to the Criteria for Being Classified as 
     an Inpatient Rehabilitation Facility'' (69 Fed. Reg. 25752).

     SEC. 5006. DEVELOPMENT OF A STRATEGIC PLAN REGARDING 
                   PHYSICIAN INVESTMENT IN SPECIALTY HOSPITALS.

       (a) Development.--
       (1) In general.--The Secretary of Health and Human Services 
     (in this section referred to as the ``Secretary'') shall 
     develop a strategic and implementing plan to address issues 
     described in paragraph (2) regarding physician investment in 
     specialty hospitals (as defined in section 1877(h)(7)(A) of 
     the Social Security Act (42 U.S.C. 1395nn(h)(7)(A)).
       (2) Issues described.--The issues described in this 
     paragraph are the following:
       (A) Proportionality of investment return.
       (B) Bona fide investment.
       (C) Annual disclosure of investment information.
       (D) The provision by specialty hospitals of--
       (i) care to patients who are eligible for medical 
     assistance under a State plan approved under title XIX of the 
     Social Security Act, including patients not so eligible but 
     who are regarded as such because they receive benefits under 
     a demonstration project approved under title XI of such Act; 
     and
       (ii) charity care.
       (E) Appropriate enforcement.
       (b) Reports.--
       (1) Interim report.--Not later than 3 months after the date 
     of the enactment of this Act, the Secretary shall submit an 
     interim report to the appropriate committees of jurisdiction 
     of Congress on the status of the development of the plan 
     under subsection (a).
       (2) Final report.--Not later than six months after the date 
     of the enactment of this Act, the Secretary shall submit a 
     final report to the appropriate committees of jurisdiction of 
     Congress on the plan developed under subsection (a) together 
     with recommendations for such legislation and administrative 
     actions as the Secretary considers appropriate.
       (c) Continuation of Suspension on Enrollment.--
       (1) In general.--Subject to paragraph (2), the Secretary 
     shall continue the suspension on enrollment of new specialty 
     hospitals (as so defined) under title XVIII of the Social 
     Security Act until the earlier of--
       (A) the date that the Secretary submits the final report 
     under subsection (b)(2); or
       (B) the date that is six months after the date of the 
     enactment of this Act.
       (2) Extension of suspension.--If the Secretary fails to 
     submit the final report described in subsection (b)(2) by the 
     date required under such subsection, the Secretary shall--
       (A) extend the suspension on enrollment under paragraph (1) 
     for an additional two months; and
       (B) provide a certification to the appropriate committees 
     of jurisdiction of Congress of such failure.
       (d) Waiver.--In developing the plan and report required 
     under this section, the Secretary may waive such requirements 
     of section 553 of title 5, United States Code, as the 
     Secretary determines necessary.
       (e) Funding.--Out of any funds in the Treasury not 
     otherwise appropriated, there are appropriated to the 
     Secretary for fiscal year 2006, $2,000,000 to carry out this 
     section.

     SEC. 5007. MEDICARE DEMONSTRATION PROJECTS TO PERMIT 
                   GAINSHARING ARRANGEMENTS.

       (a) Establishment.--The Secretary shall establish under 
     this section a qualified gainsharing demonstration program 
     under

[[Page H12649]]

     which the Secretary shall approve demonstration projects by 
     not later than November 1, 2006, to test and evaluate 
     methodologies and arrangements between hospitals and 
     physicians designed to govern the utilization of inpatient 
     hospital resources and physician work to improve the quality 
     and efficiency of care provided to Medicare beneficiaries and 
     to develop improved operational and financial hospital 
     performance with sharing of remuneration as specified in the 
     project. Such projects shall be operational by not later than 
     January 1, 2007.
       (b) Requirements Described.--A demonstration project under 
     this section shall meet the following requirements for 
     purposes of maintaining or improving quality while achieving 
     cost savings:
       (1) Arrangement for remuneration as share of savings.--The 
     demonstration project shall involve an arrangement between a 
     hospital and a physician under which the hospital provides 
     remuneration to the physician that represents solely a share 
     of the savings incurred directly as a result of collaborative 
     efforts between the hospital and the physician.
       (2) Written plan agreement.--The demonstration project 
     shall be conducted pursuant to a written agreement that--
       (A) is submitted to the Secretary prior to implementation 
     of the project; and
       (B) includes a plan outlining how the project will achieve 
     improvements in quality and efficiency.
       (3) Patient notification.--The demonstration project shall 
     include a notification process to inform patients who are 
     treated in a hospital participating in the project of the 
     participation of the hospital in such project.
       (4) Monitoring quality and efficiency of care.--The 
     demonstration project shall provide measures to ensure that 
     the quality and efficiency of care provided to patients who 
     are treated in a hospital participating in the demonstration 
     project is continuously monitored to ensure that such quality 
     and efficiency is maintained or improved.
       (5) Independent review.--The demonstration project shall 
     certify, prior to implementation, that the elements of the 
     demonstration project are reviewed by an organization that is 
     not affiliated with the hospital or the physician 
     participating in the project.
       (6) Referral limitations.--The demonstration project shall 
     not be structured in such a manner as to reward any physician 
     participating in the project on the basis of the volume or 
     value of referrals to the hospital by the physician.
       (c) Waiver of Certain Restrictions.--
       (1) In general.--An incentive payment made by a hospital to 
     a physician under and in accordance with a demonstration 
     project shall not constitute--
       (A) remuneration for purposes of section 1128B of the 
     Social Security Act (42 U.S.C. 1320a-7b);
       (B) a payment intended to induce a physician to reduce or 
     limit services to a patient entitled to benefits under 
     Medicare or a State plan approved under title XIX of such Act 
     in violation of section 1128A of such Act (42 U.S.C. 1320a-
     7a); or
       (C) a financial relationship for purposes of section 1877 
     of such Act (42 U.S.C. 1395nn).
       (2) Protection for existing arrangements.--In no case shall 
     the failure to comply with the requirements described in 
     paragraph (1) affect a finding made by the Inspector General 
     of the Department of Health and Human Services prior to the 
     date of the enactment of this Act that an arrangement between 
     a hospital and a physician does not violate paragraph (1) or 
     (2) of section 1128A(a) of the Social Security Act (42 U.S.C. 
     1320a-7(a)).
       (d) Program Administration.--
       (1) Solicitation of applications.--By not later than 90 
     days after the date of the enactment of this Act, the 
     Secretary shall solicit applications for approval of a 
     demonstration project, in such form and manner, and at such 
     time specified by the Secretary.
       (2) Number of projects approved.--The Secretary shall 
     approve not more than 6 demonstration projects, at least 2 of 
     which shall be located in a rural area.
       (3) Duration.--The qualified gainsharing demonstration 
     program under this section shall be conducted for the period 
     beginning on January 1, 2007, and ending on December 31, 
     2009.
       (e) Reports.--
       (1) Initial report.--By not later than December 1, 2006, 
     the Secretary shall submit to Congress a report on the number 
     of demonstration projects that will be conducted under this 
     section.
       (2) Project update.--By not later than December 1, 2007, 
     the Secretary shall submit to Congress a report on the 
     details of such projects (including the project improvements 
     towards quality and efficiency described in subsection 
     (b)(2)(B)).
       (3) Quality improvement and savings.--By not later than 
     December 1, 2008, the Secretary shall submit to Congress a 
     report on quality improvement and savings achieved as a 
     result of the qualified gainsharing demonstration program 
     established under subsection (a).
       (4) Final report.--By not later than May 1, 2010, the 
     Secretary shall submit to Congress a final report on the 
     information described in paragraph (3).
       (f) Funding.--
       (1) In general.--Out of any funds in the Treasury not 
     otherwise appropriated, there are appropriated to the 
     Secretary for fiscal year 2006 $6,000,000, to carry out this 
     section.
       (2) Availability.--Funds appropriated under paragraph (1) 
     shall remain available for expenditure through fiscal year 
     2010.
       (g) Definitions.--For purposes of this section:
       (1) Demonstration project.--The term ``demonstration 
     project'' means a project implemented under the qualified 
     gainsharing demonstration program established under 
     subsection (a).
       (2) Hospital.--The term ``hospital'' means a hospital that 
     receives payment under section 1886(d) of the Social Security 
     Act (42 U.S.C. 1395ww(d)), and does not include a critical 
     access hospital (as defined in section 1861(mm) of such Act 
     (42 U.S.C. 1395x(mm))).
       (3) Medicare.--The term ``Medicare'' means the programs 
     under title XVIII of the Social Security Act.
       (4) Physician.--The term ``physician'' means, with respect 
     to a demonstration project, a physician described in 
     paragraph (1) or (3) of section 1861(r) of the Social 
     Security Act (42 U.S.C. 1395x(r)) who is licensed as such a 
     physician in the area in which the project is located and 
     meets requirements to provide services for which benefits are 
     provided under Medicare. Such term shall be deemed to include 
     a practitioner described in section 1842(e)(18)(C) of such 
     Act (42 U.S.C. 1395u(e)(18)(C)).
       (5) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.

     SEC. 5008. POST-ACUTE CARE PAYMENT REFORM DEMONSTRATION 
                   PROGRAM.

       (a) Establishment.--
       (1) In general.--By not later than January 1, 2008, the 
     Secretary of Health and Human Services (in this section 
     referred to as the ``Secretary'') shall establish a 
     demonstration program for purposes of understanding costs and 
     outcomes across different post-acute care sites. Under such 
     program, with respect to diagnoses specified by the 
     Secretary, an individual who receives treatment from a 
     provider for such a diagnosis shall receive a single 
     comprehensive assessment on the date of discharge from a 
     subsection (d) hospital (as defined in section 1886(d)(1)(B) 
     of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B))) of 
     the needs of the patient and the clinical characteristics of 
     the diagnosis to determine the appropriate placement of such 
     patient in a post-acute care site. The Secretary shall use a 
     standardized patient assessment instrument across all post-
     acute care sites to measure functional status and other 
     factors during the treatment and at discharge from each 
     provider. Participants in the program shall provide 
     information on the fixed and variable costs for each 
     individual. An additional comprehensive assessment shall be 
     provided at the end of the episode of care.
       (2) Number of sites.--The Secretary shall conduct the 
     demonstration program under this section with sufficient 
     numbers to determine statistically reliable results.
       (3) Duration.--The Secretary shall conduct the 
     demonstration program under this section for a 3-year period.
       (b) Waiver Authority.--The Secretary may waive such 
     requirements of titles XI and XVIII of the Social Security 
     Act (42 U.S.C. 1301 et seq.; 42 U.S.C. 1395 et seq.) as may 
     be necessary for the purpose of carrying out the 
     demonstration program under this section.
       (c) Report.--Not later than 6 months after the completion 
     of the demonstration program under this section, the 
     Secretary shall submit to Congress a report on such program, 
     that includes the results of the program and recommendations 
     for such legislation and administrative action as the 
     Secretary determines to be appropriate.
       (d) Funding.--The Secretary shall provide for the transfer 
     from the Federal Hospital Insurance Trust Fund established 
     under section 1817 of the Social Security Act (42 U.S.C. 
     1395i), $6,000,000 for the costs of carrying out the 
     demonstration program under this section.
               Subtitle B--Provisions Relating to Part B

                     CHAPTER 1--PAYMENT PROVISIONS

     SEC. 5101. BENEFICIARY OWNERSHIP OF CERTAIN DURABLE MEDICAL 
                   EQUIPMENT (DME).

       (a) DME.--
       (1) In general.--Section 1834(a)(7)(A) of the Social 
     Security Act (42 U.S.C. 1395m(a)(7)(A)) is amended to read as 
     follows:
       ``(A) Payment.--In the case of an item of durable medical 
     equipment not described in paragraphs (2) through (6), the 
     following rules shall apply:
       ``(i) Rental.--

       ``(I) In general.--Except as provided in clause (iii), 
     payment for the item shall be made on a monthly basis for the 
     rental of the item during the period of medical need (but 
     payments under this clause may not extend over a period of 
     continuous use (as determined by the Secretary) of longer 
     than 13 months).
       ``(II) Payment amount.--Subject to subparagraph (B), the 
     amount recognized for the item, for each of the first 3 
     months of such period, is 10 percent of the purchase price 
     recognized under paragraph (8) with respect to the item, and, 
     for each of the remaining months of such period, is 7.5 
     percent of such purchase price.

       ``(ii) Ownership after rental.--On the first day that 
     begins after the 13th continuous month during which payment 
     is made for the rental of an item under clause (i), the 
     supplier of the item shall transfer title to the item to the 
     individual.
       ``(iii) Purchase agreement option for power-driven 
     wheelchairs.--In the case of a power-driven wheelchair, at 
     the time the supplier furnishes the item, the supplier shall 
     offer the individual the option to purchase the item, and 
     payment for such item shall be made on a lump-sum basis if 
     the individual exercises such option.
       ``(iv) Maintenance and servicing.--After the supplier 
     transfers title to the item under clause (ii) or in the case 
     of a power-driven wheelchair for which a purchase agreement 
     has been entered into under clause (iii), maintenance and 
     servicing payments shall, if the Secretary determines such 
     payments are reasonable and necessary, be made (for parts and 
     labor not covered by the supplier's or manufacturer's 
     warranty,

[[Page H12650]]

     as determined by the Secretary to be appropriate for the 
     particular type of durable medical equipment), and such 
     payments shall be in an amount determined to be appropriate 
     by the Secretary.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to items furnished for which the first rental 
     month occurs on or after January 1, 2006.
       (b) Oxygen Equipment.--
       (1) In general.--Section 1834(a)(5) of such Act (42 U.S.C. 
     1395m(a)(5)) is amended--
       (A) in subparagraph (A), by striking ``and (E)'' and 
     inserting ``(E), and (F)''; and
       (B) by adding at the end the following new subparagraph:
       ``(F) Ownership of Equipment.--
       ``(i) In general.--Payment for oxygen equipment (including 
     portable oxygen equipment) under this paragraph may not 
     extend over a period of continuous use (as determined by the 
     Secretary) of longer than 36 months.
       ``(ii) Ownership.--

       ``(I) Transfer of title.--On the first day that begins 
     after the 36th continuous month during which payment is made 
     for the equipment under this paragraph, the supplier of the 
     equipment shall transfer title to the equipment to the 
     individual.
       ``(II) Payments for oxygen and maintenance and servicing.--
     After the supplier transfers title to the equipment under 
     subclause (I)--

       ``(aa) payments for oxygen shall continue to be made in the 
     amount recognized for oxygen under paragraph (9) for the 
     period of medical need; and
       ``(bb) maintenance and servicing payments shall, if the 
     Secretary determines such payments are reasonable and 
     necessary, be made (for parts and labor not covered by the 
     supplier's or manufacturer's warranty, as determined by the 
     Secretary to be appropriate for the equipment), and such 
     payments shall be in an amount determined to be appropriate 
     by the Secretary.''.
       (2) Effective date.--
       (A) In general.--The amendments made by paragraph (1) shall 
     take effect on January 1, 2006.
       (B) Application to certain individuals.--In the case of an 
     individual receiving oxygen equipment on December 31, 2005, 
     for which payment is made under section 1834(a) of the Social 
     Security Act (42 U.S.C. 1395m(a)), the 36-month period 
     described in paragraph (5)(F)(i) of such section, as added by 
     paragraph (1), shall begin on January 1, 2006.

     SEC. 5102. ADJUSTMENTS IN PAYMENT FOR IMAGING SERVICES.

       (a) Multiple Procedure Payment Reduction for Imaging 
     Exempted From Budget Neutrality.--Section 1848(c)(2)(B) of 
     the Social Security Act (42 U.S.C. 1395w-4(c)(2)(B)) is 
     amended--
       (1) in clause (ii)(II), by striking ``clause (iv)'' and 
     inserting ``clauses (iv) and (v)'';
       (2) in clause (iv) in the heading, by inserting ``of 
     certain additional expenditures'' after ``Exemption''; and
       (3) by adding at the end the following new clause:
       ``(v) Exemption of certain reduced expenditures from 
     budget-neutrality calculation.--The following reduced 
     expenditures, as estimated by the Secretary, shall not be 
     taken into account in applying clause (ii)(II):

       ``(I) Reduced payment for multiple imaging procedures.--
     Effective for fee schedules established beginning with 2007, 
     reduced expenditures attributable to the multiple procedure 
     payment reduction for imaging under the final rule published 
     by the Secretary in the Federal Register on November 21, 2005 
     (42 CFR 405, et al.) insofar as it relates to the physician 
     fee schedules for 2006 and 2007.''.

       (b) Reduction in Physician Fee Schedule to OPD Payment 
     Amount for Imaging Services.--Section 1848 of such Act (42 
     U.S.C. 1395w-4) is amended--
       (1) in subsection (b), by adding at the end the following 
     new paragraph:
       ``(4) Special rule for imaging services.--
       ``(A) In general.--In the case of imaging services 
     described in subparagraph (B) furnished on or after January 
     1, 2007, if--
       ``(i) the technical component (including the technical 
     component portion of a global fee) of the service established 
     for a year under the fee schedule described in paragraph (1) 
     without application of the geographic adjustment factor 
     described in paragraph (1)(C), exceeds
       ``(ii) the medicare OPD fee schedule amount established 
     under the prospective payment system for hospital outpatient 
     department services under paragraph (3)(D) of section 1833(t) 
     for such service for such year, determined without regard to 
     geographic adjustment under paragraph (2)(D) of such section,

     the Secretary shall substitute the amount described in clause 
     (ii), adjusted by the geographic adjustment factor described 
     in paragraph (1)(C), for the fee schedule amount for such 
     technical component for such year.
       ``(B) Imaging services described.--For purposes of 
     subparagraph (A), imaging services described in this 
     subparagraph are imaging and computer-assisted imaging 
     services, including X-ray, ultrasound (including 
     echocardiography), nuclear medicine (including positron 
     emission tomography), magnetic resonance imaging, computed 
     tomography, and fluoroscopy, but excluding diagnostic and 
     screening mammography.''; and
       (2) in subsection (c)(2)(B)(v), as added by subsection 
     (a)(3), by adding at the end the following new subclause:

       ``(II) OPD payment cap for imaging services.--Effective for 
     fee schedules established beginning with 2007, reduced 
     expenditures attributable to subsection (b)(4).''.

     SEC. 5103. LIMITATION ON PAYMENTS FOR PROCEDURES IN 
                   AMBULATORY SURGICAL CENTERS.

       Section 1833(i)(2) of the Social Security Act (42 U.S.C. 
     1395l(i)(2)) is amended--
       (1) in subparagraph (A), by inserting ``subject to 
     subparagraph (E),'' after ``subparagraph (D),'';
       (2) in subparagraph (D)(ii), by inserting before the period 
     at the end the following: ``and taking into account reduced 
     expenditures that would apply if subparagraph (E) were to 
     continue to apply, as estimated by the Secretary''; and
       (3) by adding at the end the following new subparagraph:
       ``(E) With respect to surgical procedures furnished on or 
     after January 1, 2007, and before the effective date of the 
     implementation of a revised payment system under subparagraph 
     (D), if--
       ``(i) the standard overhead amount under subparagraph (A) 
     for a facility service for such procedure, without the 
     application of any geographic adjustment, exceeds
       ``(ii) the medicare OPD fee schedule amount established 
     under the prospective payment system for hospital outpatient 
     department services under paragraph (3)(D) of section 1833(t) 
     for such service for such year, determined without regard to 
     geographic adjustment under paragraph (2)(D) of such section,

     the Secretary shall substitute under subparagraph (A) the 
     amount described in clause (ii) for the standard overhead 
     amount for such service referred to in clause (i).''.

     SEC. 5104. UPDATE FOR PHYSICIANS' SERVICES FOR 2006.

       (a) Update for 2006.--Section 1848(d) of the Social 
     Security Act (42 U.S.C. 1395w-4(d)) is amended--
       (1) in paragraph (4)(B), in the matter preceding clause 
     (i), by striking ``paragraph (5)'' and inserting ``paragraphs 
     (5) and (6)''; and
       (2) by adding at the end the following new paragraph:
       ``(6) Update for 2006.--The update to the single conversion 
     factor established in paragraph (1)(C) for 2006 shall be 0 
     percent.''.
       (b) Not Treated as Change in Law and Regulation in 
     Sustainable Growth Rate Determination.--The amendments made 
     by subsection (a) shall not be treated as a change in law for 
     purposes of applying section 1848(f)(2)(D) of the Social 
     Security Act (42 U.S.C. 1395w-4(f)(2)(D)).
       (c) MedPAC Report.--
       (1) In general.--By not later than March 1, 2007, the 
     Medicare Payment Advisory Commission shall submit a report to 
     Congress on mechanisms that could be used to replace the 
     sustainable growth rate system under section 1848(f) of the 
     Social Security Act (42 U.S.C. 1395w-4(f)).
       (2) Requirements.--The report required under paragraph (1) 
     shall--
       (A) identify and examine alternative methods for assessing 
     volume growth;
       (B) review options to control the volume of physicians' 
     services under the Medicare program while maintaining access 
     to such services by Medicare beneficiaries;
       (C) examine the application of volume controls under the 
     Medicare physician fee schedule under section 1848 of the 
     Social Security Act (42 U.S.C. 1395w-4);
       (D) identify levels of application of volume controls, such 
     as group practice, hospital medical staff, type of service, 
     geographic area, and outliers;
       (E) examine the administrative feasibility of implementing 
     the options reviewed under subparagraph (B), including the 
     availability of data and time lags;
       (F) examine the extent to which the alternative methods 
     identified and examined under subparagraph (A) should be 
     specified in such section 1848; and
       (G) identify the appropriate level of discretion for the 
     Secretary of Health and Human Services to change payment 
     rates under the Medicare physician fee schedule or otherwise 
     take steps that affect physician behavior.

     Such report shall include such recommendations on alternative 
     mechanisms to replace the sustainable growth rate system as 
     the Medicare Payment Advisory Commission determines 
     appropriate.
       (3) Funding.--Out of any funds in the Treasury not 
     otherwise appropriated, there are appropriated to the 
     Medicare Payment Advisory Commission $550,000, to carry out 
     this subsection.

     SEC. 5105. THREE-YEAR TRANSITION OF HOLD HARMLESS PAYMENTS 
                   FOR SMALL RURAL HOSPITALS UNDER THE PROSPECTIVE 
                   PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
                   DEPARTMENT SERVICES.

       Section 1833(t)(7)(D)(i) of the Social Security Act (42 
     U.S.C. 1395l(t)(7)(D)(i)) is amended--
       (1) by inserting ``(I)'' before ``In the case''; and
       (2) by adding at the end the following new subclause:
       ``(II) In the case of a hospital located in a rural area 
     and that has not more than 100 beds and that is not a sole 
     community hospital (as defined in section 
     1886(d)(5)(D)(iii)), for covered OPD services furnished on or 
     after January 1, 2006, and before January 1, 2009, for which 
     the PPS amount is less than the pre-BBA amount, the amount of 
     payment under this subsection shall be increased by the 
     applicable percentage of the amount of such difference. For 
     purposes of the previous sentence, with respect to covered 
     OPD services furnished during 2006, 2007, or 2008, the 
     applicable percentage shall be 95 percent, 90 percent, and 85 
     percent, respectively.''.

     SEC. 5106. UPDATE TO THE COMPOSITE RATE COMPONENT OF THE 
                   BASIC CASE-MIX ADJUSTED PROSPECTIVE PAYMENT 
                   SYSTEM FOR DIALYSIS SERVICES.

       Section 1881(b)(12) of the Social Security Act (42 U.S.C. 
     1395rr(b)(12)) is amended--

[[Page H12651]]

       (1) in subparagraph (F), in the flush matter at the end, by 
     striking ``Nothing'' and inserting ``Except as provided in 
     subparagraph (G), nothing'';
       (2) by redesignating subparagraph (G) as subparagraph (H); 
     and
       (3) by inserting after subparagraph (F) the following new 
     subparagraph:
       ``(G) The Secretary shall increase the amount of the 
     composite rate component of the basic case-mix adjusted 
     system under subparagraph (B) for dialysis services furnished 
     on or after January 1, 2006, by 1.6 percent above the amount 
     of such composite rate component for such services furnished 
     on December 31, 2005.''.

     SEC. 5107. REVISIONS TO PAYMENTS FOR THERAPY SERVICES.

       (a) Exception to Caps for 2006.--
       (1) In general.--Section 1833(g) of the Social Security Act 
     (42 U.S.C. 1395l(g)) is amended--
       (A) in each of paragraphs (1) and (3), by striking 
     ``paragraph (4)'' and inserting ``paragraphs (4) and (5)''; 
     and
       (B) by adding at the end the following new paragraph:
       ``(5) With respect to expenses incurred during 2006 for 
     services, the Secretary shall implement a process under which 
     an individual enrolled under this part may, upon request of 
     the individual or a person on behalf of the individual, 
     obtain an exception from the uniform dollar limitation 
     specified in paragraph (2), for services described in 
     paragraphs (1) and (3) if the provision of such services is 
     determined to be medically necessary. Under such process, if 
     the Secretary does not make a decision on such a request for 
     an exception within 10 business days of the date of the 
     Secretary's receipt of the request, the Secretary shall be 
     deemed to have found the services to be medically 
     necessary.''.
       (2) Timely implementation.--The Secretary of Health and 
     Human Services shall waive such provisions of law and 
     regulation (including those described in section 110(c) of 
     Public Law 108-173) as are necessary to implement the 
     amendments made by paragraph (1) on a timely basis and, 
     notwithstanding any other provision of law, may implement 
     such amendments by program instruction or otherwise. There 
     shall be no administrative or judicial review under section 
     1869 or section 1878 of the Social Security Act (42 U.S.C. 
     1395ff and 1395oo), or otherwise of the process (including 
     the establishment of the process) under section 1833(g)(5) of 
     such Act, as added by paragraph (1).
       (b) Implementation of Clinically Appropriate Code Edits In 
     Order To Identify and Eliminate Improper Payments For Therapy 
     Services.--By not later than July 1, 2006, the Secretary of 
     Health and Human Services shall implement clinically 
     appropriate code edits with respect to payments under part B 
     of title XVIII of the Social Security Act for physical 
     therapy services, occupational therapy services, and speech-
     language pathology services in order to identify and 
     eliminate improper payments for such services, including 
     edits of clinically illogical combinations of procedure codes 
     and other edits to control inappropriate billings.

                        CHAPTER 2--MISCELLANEOUS

     SEC. 5111. ACCELERATED IMPLEMENTATION OF INCOME-RELATED 
                   REDUCTION IN PART B PREMIUM SUBSIDY.

       Section 1839(i)(3)(B) of the Social Security Act (42 U.S.C. 
     1395r(i)(3)(B)) is amended--
       (1) in the heading, by striking ``5-year'' and inserting 
     ``3-year'';
       (2) in the matter preceding clause (i), by striking 
     ``2011'' and inserting ``2009'';
       (3) in clause (i), by striking ``20 percent'' and inserting 
     ``33 percent'';
       (4) in clause (ii), by striking ``40 percent'' and 
     inserting ``67 percent''; and
       (5) by striking clauses (iii) and (iv).

     SEC. 5112. MEDICARE COVERAGE OF ULTRASOUND SCREENING FOR 
                   ABDOMINAL AORTIC ANEURYSMS.

       (a) In General.--Section 1861 of the Social Security Act 
     (42 U.S.C. 1395x) is amended--
       (1) in subsection (s)(2)--
       (A) by striking ``and'' at the end of subparagraph (Y);
       (B) by adding ``and'' at the end of subparagraph (Z) and 
     moving such subparagraph 2 ems to the left; and
       (C) by adding at the end the following new subparagraph:
       ``(AA) ultrasound screening for abdominal aortic aneurysm 
     (as defined in subsection (bbb)) for an individual--
       ``(i) who receives a referral for such an ultrasound 
     screening as a result of an initial preventive physical 
     examination (as defined in section 1861(ww)(1));
       ``(ii) who has not been previously furnished such an 
     ultrasound screening under this title; and
       ``(iii) who--
       ``(I) has a family history of abdominal aortic aneurysm; or
       ``(II) manifests risk factors included in a beneficiary 
     category recommended for screening by the United States 
     Preventive Services Task Force regarding abdominal aortic 
     aneurysms;''; and
       (2) by adding at the end the following new subsection:

          ``Ultrasound Screening for Abdominal Aortic Aneurysm

       ``(bbb) The term `ultrasound screening for abdominal aortic 
     aneurysm' means--
       ``(1) a procedure using sound waves (or such other 
     procedures using alternative technologies, of commensurate 
     accuracy and cost, that the Secretary may specify) provided 
     for the early detection of abdominal aortic aneurysm; and
       ``(2) includes a physician's interpretation of the results 
     of the procedure.''.
       (b) Inclusion of Ultrasound Screening for Abdominal Aortic 
     Aneurysm in Initial Preventive Physical Examination.--Section 
     1861(ww)(2) of such Act (42 U.S.C. 1395x(ww)(2)) is amended 
     by adding at the end the following new subparagraph:
       ``(L) Ultrasound screening for abdominal aortic aneurysm as 
     defined in section 1861(bbb).''.
       (c) Payment for Ultrasound Screening for Abdominal Aortic 
     Aneurysm.--Section 1848(j)(3) of such Act (42 U.S.C. 1395w-
     4(j)(3)) is amended by inserting ``(2)(AA),'' after 
     ``(2)(W),''.
       (d) Frequency.--Section 1862(a)(1) of such Act (42 U.S.C. 
     1395y(a)(1)) is amended--
       (1) by striking ``and'' at the end of subparagraph (L);
       (2) by striking the semicolon at the end of subparagraph 
     (M) and inserting ``, and''; and
       (3) by adding at the end the following new subparagraph:
       ``(N) in the case of ultrasound screening for abdominal 
     aortic aneurysm which is performed more frequently than is 
     provided for under section 1861(s)(2)(AA);''.
       (e) Non-Application of Part B Deductible.--Section 1833(b) 
     of such Act (42 U.S.C. 1395l(b)) is amended in the first 
     sentence--
       (1) by striking ``and'' before ``(6)''; and
       (2) by inserting ``, and (7) such deductible shall not 
     apply with respect to ultrasound screening for abdominal 
     aortic aneurysm (as defined in section 1861(bbb))'' before 
     the period at the end.
       (f) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2007.

     SEC. 5113. IMPROVING PATIENT ACCESS TO, AND UTILIZATION OF, 
                   COLORECTAL CANCER SCREENING.

       (a) Non-Application of Deductible for Colorectal Cancer 
     Screening Tests.--Section 1833(b) of the Social Security Act 
     (42 U.S.C. 1395l(b)), as amended by section 5112(e), is 
     amended in the first sentence--
       (1) by striking ``and'' before ``(7)''; and
       (2) by inserting ``, and (8) such deductible shall not 
     apply with respect to colorectal cancer screening tests (as 
     described in section 1861(pp)(1))'' before the period at the 
     end.
       (b) Conforming Amendments.--Paragraphs (2)(C)(ii) and 
     (3)(C)(ii) of section 1834(d) of such Act (42 U.S.C. 
     1395m(d)) are each amended--
       (1) by striking ``deductible and'' in the heading; and
       (2) in subclause (I), by striking ``deductible or'' each 
     place it appears.
       (c) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2007.

     SEC. 5114. DELIVERY OF SERVICES AT FEDERALLY QUALIFIED HEALTH 
                   CENTERS.

       (a) Coverage.--
       (1) In general.--Section 1861(aa)(3) of the Social Security 
     Act (42 U.S.C. 1395x(aa)(3)) is amended--
       (A) in subparagraph (A), by striking ``, and'' and 
     inserting ``and services described in subsections (qq) and 
     (vv); and'';
       (B) in subparagraph (B), by striking ``sections 329, 330, 
     and 340'' and inserting ``section 330''; and
       (C) in the flush matter at the end, by inserting ``by the 
     center or by a health care professional under contract with 
     the center'' after ``outpatient of a Federally qualified 
     health center''.
       (2) Consolidated billing.--The first sentence of section 
     1842(b)(6)(F) of such Act (42 U.S.C. 1395u(b)(6)(F)) is 
     amended--
       (A) by striking ``and (G)'' and inserting ``(G)''; and
       (B) by inserting before the period at the end the 
     following: ``, and (H) in the case of services described in 
     section 1861(aa)(3) that are furnished by a health care 
     professional under contract with a Federally qualified health 
     center, payment shall be made to the center''.
       (b) Technical Corrections.--Clauses (i) and (ii)(II) of 
     section 1861(aa)(4)(A) of such Act (42 U.S.C. 
     1395x(aa)(4)(A)) are each amended by striking ``(other than 
     subsection (h))''.
       (c) Effective Dates.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2006.

     SEC. 5115. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR 
                   CERTAIN INTERNATIONAL VOLUNTEERS.

       (a) In General.--
       (1) Waiver of penalty.--Section 1839(b) of the Social 
     Security Act (42 U.S.C. 1395r(b)) is amended in the second 
     sentence by inserting the following before the period at the 
     end: ``or months for which the individual can demonstrate 
     that the individual was an individual described in section 
     1837(k)(3)''.
       (2) Special enrollment period.--
       (A) In general.--Section 1837 of such Act (42 U.S.C. 1395p) 
     is amended by adding at the end the following new subsection:
       ``(k)(1) In the case of an individual who--
       ``(A) at the time the individual first satisfies paragraph 
     (1) or (2) of section 1836, is described in paragraph (3), 
     and has elected not to enroll (or to be deemed enrolled) 
     under this section during the individual's initial enrollment 
     period; or
       ``(B) has terminated enrollment under this section during a 
     month in which the individual is described in paragraph (3),

     there shall be a special enrollment period described in 
     paragraph (2).
       ``(2) The special enrollment period described in this 
     paragraph is the 6-month period beginning on the first day of 
     the month which includes the date that the individual is no 
     longer described in paragraph (3).
       ``(3) For purposes of paragraph (1), an individual 
     described in this paragraph is an individual who--
       ``(A) is serving as a volunteer outside of the United 
     States through a program--
       ``(i) that covers at least a 12-month period; and
       ``(ii) that is sponsored by an organization 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

[[Page H12652]]

       ``(B) demonstrates health insurance coverage while serving 
     in the program.''.
       (B) Coverage period.--Section 1838 of such Act (42 U.S.C. 
     1395q) is amended by adding at the end the following new 
     subsection:
       ``(f) Notwithstanding subsection (a), in the case of an 
     individual who enrolls during a special enrollment period 
     pursuant to section 1837(k), the coverage period shall begin 
     on the first day of the month following the month in which 
     the individual so enrolls.''.
       (b) Effective Date.--The amendment made by subsection 
     (a)(1) shall apply to months beginning with January 2007 and 
     the amendments made by subsection (a)(2) shall take effect on 
     January 1, 2007.
            Subtitle C--Provisions Relating to Parts A and B

     SEC. 5201. HOME HEALTH PAYMENTS.

       (a) 2006 Update.--Section 1895(b)(3)(B)(ii) of the Social 
     Security Act (42 U.S.C. 1395fff(b)(3)(B)(ii)) is amended--
       (1) in subclause (III), by striking ``each of 2005 and 
     2006'' and inserting ``all of 2005'';
       (2) by striking ``or'' at the end of subclause (III);
       (3) in subclause (IV), by striking ``2007 and'' and by 
     redesignating such subclause as subclause (V); and
       (4) by inserting after subclause (III) the following new 
     subclause:

       ``(IV) 2006, 0 percent; and''.

       (b) Applying Rural Add-On Policy for 2006.--Section 421(a) 
     of Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003 (Public Law 108-173; 117 Stat. 2283) is amended 
     by inserting ``and episodes and visits beginning on or after 
     January 1, 2006, and before January 1, 2007,'' after ``April 
     1, 2005,''.
       (c) Home Health Care Quality Improvement.--Section 
     1895(b)(3)(B) of the Social Security Act (42 U.S.C. 
     1395fff(b)(3)(B)) is amended--
       (1) in clause (ii)(V), as redesignated by subsection 
     (a)(3), by inserting ``subject to clause (v),'' after 
     ``subsequent year,''; and
       (2) by adding at the end the following new clause:
       ``(v) Adjustment if quality data not submitted.--

       ``(I) Adjustment.--For purposes of clause (ii)(V), for 2007 
     and each subsequent year, in the case of a home health agency 
     that does not submit data to the Secretary in accordance with 
     subclause (II) with respect to such a year, the home health 
     market basket percentage increase applicable under such 
     clause for such year shall be reduced by 2 percentage points. 
     Such reduction shall apply only with respect to the year 
     involved, and the Secretary shall not take into account such 
     reduction in computing the prospective payment amount under 
     this section for a subsequent year, and the Medicare Payment 
     Advisory Commission shall carry out the requirements under 
     section 5201(d) of the Deficit Reduction Act of 2005.
       ``(II) Submission of quality data.--For 2007 and each 
     subsequent year, each home health agency shall submit to the 
     Secretary such data that the Secretary determines are 
     appropriate for the measurement of health care quality. Such 
     data shall be submitted in a form and manner, and at a time, 
     specified by the Secretary for purposes of this clause.
       ``(III) Public availability of data submitted.--The 
     Secretary shall establish procedures for making data 
     submitted under subclause (II) available to the public. Such 
     procedures shall ensure that a home health agency has the 
     opportunity to review the data that is to be made public with 
     respect to the agency prior to such data being made 
     public.''.

       (d) MedPAC Report on Value Based Purchasing.--
       (1) In general.--Not later than June 1, 2007, the Medicare 
     Payment Advisory Commission shall submit to Congress a report 
     that includes recommendations on a detailed structure of 
     value based payment adjustments for home health services 
     under the Medicare program under title XVIII of the Social 
     Security Act. Such report shall include recommendations 
     concerning the determination of thresholds, the size of such 
     payments, sources of funds, and the relationship of payments 
     for improvement and attainment of quality.
       (2) Funding.--Out of any funds in the Treasury not 
     otherwise appropriated, there are appropriated to the 
     Medicare Payment Advisory Commission $550,000, to carry out 
     this subsection.

     SEC. 5202. REVISION OF PERIOD FOR PROVIDING PAYMENT FOR 
                   CLAIMS THAT ARE NOT SUBMITTED ELECTRONICALLY.

       (a) Revision.--
       (1) Part a.--Section 1816(c)(3)(B)(ii) of the Social 
     Security Act (42 U.S.C. 1395h(c)(3)(B)(ii)) is amended by 
     striking ``26 days'' and inserting ``28 days''.
       (2) Part b.--Section 1842(c)(3)(B)(ii) of such Act (42 
     U.S.C. 1395u(c)(3)(B)(ii)) is amended by striking ``26 days'' 
     and inserting ``28 days''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to claims submitted on or after January 1, 2006.

     SEC. 5203. TIMEFRAME FOR PART A AND B PAYMENTS.

       Notwithstanding sections 1816(c) and 1842(c)(2) of the 
     Social Security Act or any other provision of law--
       (1) any payment from the Federal Hospital Insurance Trust 
     Fund under section 1817 of the Social Security Act (42 U.S.C. 
     1395i) or from the Federal Supplementary Medical Insurance 
     Trust Fund under section 1841 of such Act (42 U.S.C. 1395t) 
     for claims submitted under part A or B of title XVIII of such 
     Act for items and services furnished under such part A or B, 
     respectively, that would otherwise be payable during the 
     period beginning on September 22, 2006, and ending on 
     September 30, 2006, shall be paid on the first business day 
     of October 2006; and
       (2) no interest or late penalty shall be paid to an entity 
     or individual for any delay in a payment by reason of the 
     application of paragraph (1).

     SEC. 5204. MEDICARE INTEGRITY PROGRAM FUNDING.

       Section 1817(k)(4) of the Social Security Act (42 U.S.C. 
     1395i(k)(4)) is amended--
       (1) in subparagraph (B), by striking ``The amount'' and 
     inserting ``Subject to subparagraph (C), the amount''; and
       (2) by adding at the end the following new subparagraph:
       ``(C) Adjustments.--The amount appropriated under 
     subparagraph (A) for a fiscal year is increased as follows:
       ``(i) For fiscal year 2006, $100,000,000.''.
               Subtitle D--Provisions Relating to Part C

     SEC. 5301. PHASE-OUT OF RISK ADJUSTMENT BUDGET NEUTRALITY IN 
                   DETERMINING THE AMOUNT OF PAYMENTS TO MEDICARE 
                   ADVANTAGE ORGANIZATIONS.

       (a) In General.--Section 1853 of the Social Security Act 
     (42 U.S.C. 1395w-23) is amended--
       (1) in subsection (j)(1)--
       (A) in subparagraph (A)--
       (i) by inserting ``(or, beginning with 2007, \1/12\ of the 
     applicable amount determined under subsection (k)(1))'' after 
     ``1853(c)(1)''; and
       (ii) by inserting ``(for years before 2007)'' after 
     ``adjusted as appropriate'';
       (B) in subparagraph (B), by inserting ``(for years before 
     2007)'' after ``adjusted as appropriate''; and
       (2) by adding at the end the following new subsection:
       ``(k) Determination of Applicable Amount for Purposes of 
     Calculating the Benchmark Amounts.--
       ``(1) Applicable amount defined.--For purposes of 
     subsection (j), subject to paragraph (2), the term 
     `applicable amount' means for an area--
       ``(A) for 2007--
       ``(i) if such year is not specified under subsection 
     (c)(1)(D)(ii), an amount equal to the amount specified in 
     subsection (c)(1)(C) for the area for 2006--

       ``(I) first adjusted by the rescaling factor for 2006 for 
     the area (as made available by the Secretary in the 
     announcement of the rates on April 4, 2005, under subsection 
     (b)(1), but excluding any national adjustment factors for 
     coding intensity and risk adjustment budget neutrality that 
     were included in such factor); and
       ``(II) then increased by the national per capita MA growth 
     percentage, described in subsection (c)(6) for 2007, but not 
     taking into account any adjustment under subparagraph (C) of 
     such subsection for a year before 2004;

       ``(ii) if such year is specified under subsection 
     (c)(1)(D)(ii), an amount equal to the greater of--

       ``(I) the amount determined under clause (i) for the area 
     for the year; or
       ``(II) the amount specified in subsection (c)(1)(D) for the 
     area for the year; and

       ``(B) for a subsequent year--
       ``(i) if such year is not specified under subsection 
     (c)(1)(D)(ii), an amount equal to the amount determined under 
     this paragraph for the area for the previous year (determined 
     without regard to paragraph (2)), increased by the national 
     per capita MA growth percentage, described in subsection 
     (c)(6) for that succeeding year, but not taking into account 
     any adjustment under subparagraph (C) of such subsection for 
     a year before 2004; and
       ``(ii) if such year is specified under subsection 
     (c)(1)(D)(ii), an amount equal to the greater of--

       ``(I) the amount determined under clause (i) for the area 
     for the year; or
       ``(II) the amount specified in subsection (c)(1)(D) for the 
     area for the year.

       ``(2) Phase-out of budget neutrality factor.--
       ``(A) In general.--Except as provided in subparagraph (D), 
     in the case of 2007 through 2010, the applicable amount 
     determined under paragraph (1) shall be multiplied by a 
     factor equal to 1 plus the product of--
       ``(i) the percent determined under subparagraph (B) for the 
     year; and
       ``(ii) the applicable phase-out factor for the year under 
     subparagraph (C).
       ``(B) Percent determined.--
       ``(i) In general.--For purposes of subparagraph (A)(i), 
     subject to clause (iv), the percent determined under this 
     subparagraph for a year is a percent equal to a fraction the 
     numerator of which is described in clause (ii) and the 
     denominator of which is described in clause (iii).
       ``(ii) Numerator based on difference between demographic 
     rate and risk rate.--

       ``(I) In general.--The numerator described in this clause 
     is an amount equal to the amount by which the demographic 
     rate described in subclause (II) exceeds the risk rate 
     described in subclause (III).
       ``(II) Demographic rate.--The demographic rate described in 
     this subclause is the Secretary's estimate of the total 
     payments that would have been made under this part in the 
     year if all the monthly payment amounts for all MA plans were 
     equal to \1/12\ of the annual MA capitation rate under 
     subsection (c)(1) for the area and year, adjusted pursuant to 
     subsection (a)(1)(C).
       ``(III) Risk rate.--The risk rate described in this 
     subclause is the Secretary's estimate of the total payments 
     that would have been made under this part in the year if all 
     the monthly payment amounts for all MA plans were equal to 
     the amount described in subsection (j)(1)(A) (determined as 
     if this paragraph had not applied) under subsection (j) for 
     the area and year, adjusted pursuant to subsection (a)(1)(C).

       ``(iii) Denominator based on risk rate.--The denominator 
     described in this clause is equal to the total amount 
     estimated for the year under clause (ii)(III).

[[Page H12653]]

       ``(iv) Requirements.--In estimating the amounts under the 
     previous clauses, the Secretary shall--

       ``(I) use a complete set of the most recent and 
     representative Medicare Advantage risk scores under 
     subsection (a)(3) that are available from the risk adjustment 
     model announced for the year;
       ``(II) adjust the risk scores to reflect changes in 
     treatment and coding practices in the fee-for-service sector;
       ``(III) adjust the risk scores for differences in coding 
     patterns between Medicare Advantage plans and providers under 
     the original medicare fee-for-service program under parts A 
     and B to the extent that the Secretary has identified such 
     differences, as required in subsection (a)(1)(C);
       ``(IV) as necessary, adjust the risk scores for late data 
     submitted by Medicare Advantage organizations;
       ``(V) as necessary, adjust the risk scores for lagged 
     cohorts; and
       ``(VI) as necessary, adjust the risk scores for changes in 
     enrollment in Medicare Advantage plans during the year.

       ``(v) Authority.--In computing such amounts the Secretary 
     may take into account the estimated health risk of enrollees 
     in preferred provider organization plans (including MA 
     regional plans) for the year.
       ``(C) Applicable phase-out factor.--For purposes of 
     subparagraph (A)(ii), the term `applicable phase-out factor' 
     means--
       ``(i) for 2007, 0.55;
       ``(ii) for 2008, 0.40;
       ``(iii) for 2009, 0.25; and
       ``(iv) for 2010, 0.05.
       ``(D) Termination of application.--Subparagraph (A) shall 
     not apply in a year if the amount estimated under 
     subparagraph (B)(ii)(III) for the year is equal to or greater 
     than the amount estimated under subparagraph (B)(ii)(II) for 
     the year.
       ``(3) No revision in percent.--
       ``(A) In general.--The Secretary may not make any 
     adjustment to the percent determined under paragraph (2)(B) 
     for any year.
       ``(B) Rule of construction.--Nothing in this subsection 
     shall be construed to limit the authority of the Secretary to 
     make adjustments to the applicable amounts determined under 
     paragraph (1) as appropriate for purposes of updating data or 
     for purposes of adopting an improved risk adjustment 
     methodology.''.
       (b) Refinements to Health Status Adjustment.--Section 
     1853(a)(1)(C) of such Act (42 U.S.C. 1395w-23) is amended--
       (1) by designating the matter after the heading as a clause 
     (i) with the following heading: ``In general.--'' and 
     indenting appropriately; and
       (2) by adding at the end the following:
       ``(ii) Application during phase-out of budget neutrality 
     factor.--For 2006 through 2010:

       ``(I) In applying the adjustment under clause (i) for 
     health status to payment amounts, the Secretary shall ensure 
     that such adjustment reflects changes in treatment and coding 
     practices in the fee-for-service sector and reflects 
     differences in coding patterns between Medicare Advantage 
     plans and providers under part A and B to the extent that the 
     Secretary has identified such differences.
       ``(II) In order to ensure payment accuracy, the Secretary 
     shall conduct an analysis of the differences described in 
     subclause (I). The Secretary shall complete such analysis by 
     a date necessary to ensure that the results of such analysis 
     are incorporated into the risk scores only for 2008, 2009, 
     and 2010. In conducting such analysis, the Secretary shall 
     use data submitted with respect to 2004 and subsequent years, 
     as available.''.

     SEC. 5302. RURAL PACE PROVIDER GRANT PROGRAM.

       (a) Definitions.--In this section:
       (1) CMS.--The term ``CMS'' means the Centers for Medicare & 
     Medicaid Services.
       (2) PACE program.--The term ``PACE program'' has the 
     meaning given that term in sections 1894(a)(2) and 1934(a)(2) 
     of the Social Security Act (42 U.S.C. 1395eee(a)(2); 1396u-
     4(a)(2)).
       (3) PACE provider.--The term ``PACE provider'' has the 
     meaning given that term in section 1894(a)(3) or 1934(a)(3) 
     of the Social Security Act (42 U.S.C. 1395eee(a)(3); 1396u-
     4(a)(3)).
       (4) Rural area.--The term ``rural area'' has the meaning 
     given that term in section 1886(d)(2)(D) of the Social 
     Security Act (42 U.S.C. 1395ww(d)(2)(D)).
       (5) Rural pace pilot site.--The term ``rural PACE pilot 
     site'' means a PACE provider that has been approved to 
     provide services in a geographic service area that is, in 
     whole or in part, a rural area, and that has received a site 
     development grant under this section.
       (6) Secretary.--The term ``Secretary'' means the Secretary 
     of Health and Human Services.
       (b) Site Development Grants and Technical Assistance 
     Program.--
       (1) Site development grants.--
       (A) In general.--The Secretary shall establish a process 
     and criteria to award site development grants to qualified 
     PACE providers that have been approved to serve a rural area.
       (B) Amount per award.--A site development grant awarded 
     under subparagraph (A) to any individual rural PACE pilot 
     site shall not exceed $750,000.
       (C) Number of awards.--Not more than 15 rural PACE pilot 
     sites shall be awarded a site development grant under 
     subparagraph (A).
       (D) Use of funds.--Funds made available under a site 
     development grant awarded under subparagraph (A) may be used 
     for the following expenses only to the extent such expenses 
     are incurred in relation to establishing or delivering PACE 
     program services in a rural area:
       (i) Feasibility analysis and planning.
       (ii) Interdisciplinary team development.
       (iii) Development of a provider network, including contract 
     development.
       (iv) Development or adaptation of claims processing 
     systems.
       (v) Preparation of special education and outreach efforts 
     required for the PACE program.
       (vi) Development of expense reporting required for 
     calculation of outlier payments or reconciliation processes.
       (vii) Development of any special quality of care or patient 
     satisfaction data collection efforts.
       (viii) Establishment of a working capital fund to sustain 
     fixed administrative, facility, or other fixed costs until 
     the provider reaches sufficient enrollment size.
       (ix) Startup and development costs incurred prior to the 
     approval of the rural PACE pilot site's PACE provider 
     application by CMS.
       (x) Any other efforts determined by the rural PACE pilot 
     site to be critical to its successful startup, as approved by 
     the Secretary.
       (E) Appropriation.--
       (i) In general.--Out of funds in the Treasury not otherwise 
     appropriated, there are appropriated to the Secretary to 
     carry out this subsection for fiscal year 2006, $7,500,000.
       (ii) Availability.--Funds appropriated under clause (i) 
     shall remain available for expenditure through fiscal year 
     2008.
       (2) Technical assistance program.--The Secretary shall 
     establish a technical assistance program to provide--
       (A) outreach and education to State agencies and provider 
     organizations interested in establishing PACE programs in 
     rural areas; and
       (B) technical assistance necessary to support rural PACE 
     pilot sites.
       (c) Cost Outlier Protection for Rural Pace Pilot Sites.--
       (1) Establishment of fund for reimbursement of outlier 
     costs.--Notwithstanding any other provision of law, the 
     Secretary shall establish an outlier fund to reimburse rural 
     PACE pilot sites for recognized outlier costs (as defined in 
     paragraph (3)) incurred for eligible outlier participants (as 
     defined in paragraph (2)) in an amount, subject to paragraph 
     (4), equal to 80 percent of the amount by which the 
     recognized outlier costs exceeds $50,000.
       (2) Eligible outlier participant.--For purposes of this 
     subsection, the term ``eligible outlier participant'' means a 
     PACE program eligible individual (as defined in sections 
     1894(a)(5) and 1934(a)(5) of the Social Security Act (42 
     U.S.C. 1395eee(a)(5); 1396u-4(a)(5) who resides in a rural 
     area and with respect to whom the rural PACE pilot site 
     incurs more than $50,000 in recognized costs in a 12-month 
     period.
       (3) Recognized outlier costs defined.--
       (A) In general.--For purposes of this subsection, the term 
     ``recognized outlier costs'' means, with respect to services 
     furnished to an eligible outlier participant by a rural PACE 
     pilot site, the least of the following (as documented by the 
     site to the satisfaction of the Secretary) for the provision 
     of inpatient and related physician and ancillary services for 
     the eligible outlier participant in a given 12-month period:
       (i) If the services are provided under a contract between 
     the pilot site and the provider, the payment rate specified 
     under the contract.
       (ii) The payment rate established under the original 
     medicare fee-for-service program for such service.
       (iii) The amount actually paid for the services by the 
     pilot site.
       (B) Inclusion in only one period.--Recognized outlier costs 
     may not be included in more than one 12-month period.
       (3) Outlier expense payment.--
       (A) Payment for outlier costs.--Subject to subparagraph 
     (B), in the case of a rural PACE pilot site that has incurred 
     outlier costs for an eligible outlier participant, the rural 
     PACE pilot site shall receive an outlier expense payment 
     equal to 80 percent of such costs that exceed $50,000.
       (4) Limitations.--
       (A) Costs incurred per eligible outlier participant.--The 
     total amount of outlier expense payments made under this 
     subsection to a rural PACE pilot site with respect to an 
     eligible outlier participant for any 12-month period shall 
     not exceed $100,000 for the 12-month period used to calculate 
     the payment.
       (B) Costs incurred per provider.--No rural PACE pilot site 
     may receive more than $500,000 in total outlier expense 
     payments in a 12-month period.
       (C) Limitation of outlier cost reimbursement period.--A 
     rural PACE pilot site shall only receive outlier expense 
     payments under this subsection with respect to costs incurred 
     during the first 3 years of the site's operation.
       (5) Requirement to access risk reserves prior to payment.--
     A rural PACE pilot site shall access and exhaust any risk 
     reserves held or arranged for the provider (other than 
     revenue or reserves maintained to satisfy the requirements of 
     section 460.80(c) of title 42, Code of Federal Regulations) 
     and any working capital established through a site 
     development grant awarded under subsection (b)(1), prior to 
     receiving any payment from the outlier fund.
       (6) Application.--In order to receive an outlier expense 
     payment under this subsection with respect to an eligible 
     outlier participant, a rural PACE pilot site shall submit an 
     application containing--
       (A) documentation of the costs incurred with respect to the 
     participant;
       (B) a certification that the site has complied with the 
     requirements under paragraph (4); and
       (C) such additional information as the Secretary may 
     require.
       (7) Appropriation.--
       (A) In general.--Out of funds in the Treasury not otherwise 
     appropriated, there are appropriated to the Secretary to 
     carry out this subsection for fiscal year 2006, $10,000,000.
       (B) Availability.--Funds appropriated under subparagraph 
     (A) shall remain available for expenditure through fiscal 
     year 2010.

[[Page H12654]]

       (d) Evaluation of PACE Providers Serving Rural Service 
     Areas.--Not later than 60 months after the date of enactment 
     of this Act, the Secretary shall submit a report to Congress 
     containing an evaluation of the experience of rural PACE 
     pilot sites.
       (e) Amounts in Addition to Payments Under Social Security 
     Act.--Any amounts paid under the authority of this section to 
     a PACE provider shall be in addition to payments made to the 
     provider under section 1894 or 1934 of the Social Security 
     Act (42 U.S.C. 1395eee; 1396u-4).
                      TITLE VI--MEDICAID AND SCHIP
                          Subtitle A--Medicaid

               CHAPTER 1--PAYMENT FOR PRESCRIPTION DRUGS

     SEC. 6001. FEDERAL UPPER PAYMENT LIMIT FOR MULTIPLE SOURCE 
                   DRUGS AND OTHER DRUG PAYMENT PROVISIONS.

       (a) Modification of Federal Upper Payment Limit for 
     Multiple Source Drugs; Definition of Multiple Source Drugs.--
     Section 1927 of the Social Security Act (42 U.S.C. 1396r-8) 
     is amended--
       (1) in subsection (e)(4)--
       (A) by striking ``The Secretary'' and inserting ``Subject 
     to paragraph (5), the Secretary''; and
       (B) by inserting ``(or, effective January 1, 2007, two or 
     more)'' after ``three or more'';
       (2) by adding at the end of subsection (e) the following 
     new paragraph:
       ``(5) Use of amp in upper payment limits.--Effective 
     January 1, 2007, in applying the Federal upper reimbursement 
     limit under paragraph (4) and section 447.332(b) of title 42 
     of the Code of Federal Regulations, the Secretary shall 
     substitute 250 percent of the average manufacturer price (as 
     computed without regard to customary prompt pay discounts 
     extended to wholesalers) for 150 percent of the published 
     price.'';
       (3) in subsection (k)(7)(A)(i), in the matter preceding 
     subclause (I), by striking ``are 2 or more drug products'' 
     and inserting ``at least 1 other drug product''; and
       (4) in subclauses (I), (II), and (III) of subsection 
     (k)(7)(A)(i), by striking ``are'' and inserting ``is'' each 
     place it appears.
       (b) Disclosure of Price Information to States and the 
     Public.--Subsection (b)(3) of such section is amended--
       (1) in subparagraph (A)--
       (A) in clause (i), by inserting ``month of a'' after ``last 
     day of each''; and
       (B) by adding at the end the following: ``Beginning July 1, 
     2006, the Secretary shall provide on a monthly basis to 
     States under subparagraph (D)(iv) the most recently reported 
     average manufacturer prices for single source drugs and for 
     multiple source drugs and shall, on at least a quarterly 
     basis, update the information posted on the website under 
     subparagraph (D)(v).''; and
       (2) in subparagraph (D)--
       (A) by striking ``and'' at the end of clause (ii);
       (B) by striking the period at the end of clause (iii) and 
     inserting a comma; and
       (C) by inserting after clause (iii) the following new 
     clauses:
       ``(iv) to States to carry out this title, and
       ``(v) to the Secretary to disclose (through a website 
     accessible to the public) average manufacturer prices.''.
       (c) Definition of Average Manufacturer Price.--
       (1) Exclusion of customary prompt pay discounts extended to 
     wholesalers.--Subsection (k)(1) of such section is amended--
       (A) by striking ``The term'' and inserting the following:
       ``(A) In general.--Subject to subparagraph (B), the term'';
       (B) by striking ``, after deducting customary prompt pay 
     discounts''; and
       (C) by adding at the end the following:
       ``(B) Exclusion of customary prompt pay discounts extended 
     to wholesalers.--The average manufacturer price for a covered 
     outpatient drug shall be determined without regard to 
     customary prompt pay discounts extended to wholesalers.''.
       (2) Manufacturer reporting of prompt pay discounts.--
     Subsection (b)(3)(A)(i) of such section is amended by 
     inserting ``, customary prompt pay discounts extended to 
     wholesalers,'' after ``(k)(1))''.
       (3) Requirement to promulgate regulation.--
       (A) Inspector general recommendations.--Not later than June 
     1, 2006, the Inspector General of the Department of Health 
     and Human Services shall--
       (i) review the requirements for, and manner in which, 
     average manufacturer prices are determined under section 1927 
     of the Social Security Act, as amended by this section; and
       (ii) shall submit to the Secretary of Health and Human 
     Services and Congress such recommendations for changes in 
     such requirements or manner as the Inspector General 
     determines to be appropriate.
       (B) Deadline for promulgation.--Not later than July 1, 
     2007, the Secretary of Health and Human Services shall 
     promulgate a regulation that clarifies the requirements for, 
     and manner in which, average manufacturer prices are 
     determined under section 1927 of the Social Security Act, 
     taking into consideration the recommendations submitted to 
     the Secretary in accordance with subparagraph (A)(ii).
       (d) Exclusion of Sales at a Nominal Price From 
     Determination of Best Price.--
       (1) Manufacturer reporting of sales.--Subsection 
     (b)(3)(A)(iii) of such section is amended by inserting before 
     the period at the end the following: ``, and, for calendar 
     quarters beginning on or after January 1, 2007 and only with 
     respect to the information described in subclause (III), for 
     covered outpatient drugs''.
       (2) Limitation on sales at a nominal price.--Subsection 
     (c)(1) of such section is amended by adding at the end the 
     following new subparagraph:
       ``(D) Limitation on sales at a nominal price.--
       ``(i) In general.--For purposes of subparagraph 
     (C)(ii)(III) and subsection (b)(3)(A)(iii)(III), only sales 
     by a manufacturer of covered outpatient drugs at nominal 
     prices to the following shall be considered to be sales at a 
     nominal price or merely nominal in amount:

       ``(I) A covered entity described in section 340B(a)(4) of 
     the Public Health Service Act.
       ``(II) An intermediate care facility for the mentally 
     retarded.
       ``(III) A State-owned or operated nursing facility.
       ``(IV) Any other facility or entity that the Secretary 
     determines is a safety net provider to which sales of such 
     drugs at a nominal price would be appropriate based on the 
     factors described in clause (ii).

       ``(ii) Factors.--The factors described in this clause with 
     respect to a facility or entity are the following:

       ``(I) The type of facility or entity.
       ``(II) The services provided by the facility or entity.
       ``(III) The patient population served by the facility or 
     entity.
       ``(IV) The number of other facilities or entities eligible 
     to purchase at nominal prices in the same service area.

       ``(iii) Nonapplication.--Clause (i) shall not apply with 
     respect to sales by a manufacturer at a nominal price of 
     covered outpatient drugs pursuant to a master agreement under 
     section 8126 of title 38, United States Code.''.
       (e) Retail Survey Prices; State Payment and Utilization 
     Rates; and Performance Rankings.--Such section is further 
     amended by inserting after subsection (e) the following new 
     subsection:
       ``(f) Survey of Retail Prices; State Payment and 
     Utilization Rates; and Performance Rankings.--
       ``(1) Survey of retail prices.--
       ``(A) Use of vendor.--The Secretary may contract services 
     for--
       ``(i) the determination on a monthly basis of retail survey 
     prices for covered outpatient drugs that represent a 
     nationwide average of consumer purchase prices for such 
     drugs, net of all discounts and rebates (to the extent any 
     information with respect to such discounts and rebates is 
     available); and
       ``(ii) the notification of the Secretary when a drug 
     product that is therapeutically and pharmaceutically 
     equivalent and bioequivalent becomes generally available.
       ``(B) Secretary response to notification of availability of 
     multiple source products.--If contractor notifies the 
     Secretary under subparagraph (A)(ii) that a drug product 
     described in such subparagraph has become generally 
     available, the Secretary shall make a determination, within 7 
     days after receiving such notification, as to whether the 
     product is now described in subsection (e)(4).
       ``(C) Use of competitive bidding.--In contracting for such 
     services, the Secretary shall competitively bid for an 
     outside vendor that has a demonstrated history in--
       ``(i) surveying and determining, on a representative 
     nationwide basis, retail prices for ingredient costs of 
     prescription drugs;
       ``(ii) working with retail pharmacies, commercial payers, 
     and States in obtaining and disseminating such price 
     information; and
       ``(iii) collecting and reporting such price information on 
     at least a monthly basis.

     In contracting for such services, the Secretary may waive 
     such provisions of the Federal Acquisition Regulation as are 
     necessary for the efficient implementation of this 
     subsection, other than provisions relating to confidentiality 
     of information and such other provisions as the Secretary 
     determines appropriate.
       ``(D) Additional provisions.--A contract with a vendor 
     under this paragraph shall include such terms and conditions 
     as the Secretary shall specify, including the following:
       ``(i) The vendor must monitor the marketplace and report to 
     the Secretary each time there is a new covered outpatient 
     drug generally available.
       ``(ii) The vendor must update the Secretary no less often 
     than monthly on the retail survey prices for covered 
     outpatient drugs.
       ``(iii) The contract shall be effective for a term of 2 
     years.
       ``(E) Availability of information to states.--Information 
     on retail survey prices obtained under this paragraph, 
     including applicable information on single source drugs, 
     shall be provided to States on at least a monthly basis. The 
     Secretary shall devise and implement a means for providing 
     access to each State agency designated under section 
     1902(a)(5) with responsibility for the administration or 
     supervision of the administration of the State plan under 
     this title of the retail survey price determined under this 
     paragraph.
       ``(2) Annual state report.--Each State shall annually 
     report to the Secretary information on--
       ``(A) the payment rates under the State plan under this 
     title for covered outpatient drugs;
       ``(B) the dispensing fees paid under such plan for such 
     drugs; and
       ``(C) utilization rates for noninnovator multiple source 
     drugs under such plan.
       ``(3) Annual state performance rankings.--
       ``(A) Comparative analysis.--The Secretary annually shall 
     compare, for the 50 most widely prescribed drugs identified 
     by the Secretary, the national retail sales price data 
     (collected under paragraph (1)) for such drugs with data on 
     prices under this title for each such drug for each State.
       ``(B) Availability of information.--The Secretary shall 
     submit to Congress and the States full information regarding 
     the annual rankings made under subparagraph (A).

[[Page H12655]]

       ``(4) Appropriation.--Out of any funds in the Treasury not 
     otherwise appropriated, there is appropriated to the 
     Secretary of Health and Human Services $5,000,000 for each of 
     fiscal years 2006 through 2010 to carry out this 
     subsection.''.
       (f) Miscellaneous Amendments.--
       (1) In general.--Sections 1927(g)(1)(B)(i)(II) and 
     1861(t)(2)(B)(ii)(I) of such Act are each amended by 
     inserting ``(or its successor publications)'' after ``United 
     States Pharmacopoeia-Drug Information''.
       (2) Paperwork reduction.--The last sentence of section 
     1927(g)(2)(A)(ii) of such Act (42 U.S.C. 1396r-
     8(g)(2)(A)(ii)) is amended by inserting before the period at 
     the end the following: ``, or to require verification of the 
     offer to provide consultation or a refusal of such offer''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.
       (g) Effective Date.--Except as otherwise provided, the 
     amendments made by this section shall take effect on January 
     1, 2007, without regard to whether or not final regulations 
     to carry out such amendments have been promulgated by such 
     date.

     SEC. 6002. COLLECTION AND SUBMISSION OF UTILIZATION DATA FOR 
                   CERTAIN PHYSICIAN ADMINISTERED DRUGS.

       (a) In General.--Section 1927(a) of the Social Security Act 
     (42 U.S.C. 1396r-8(a)) is amended by adding at the end the 
     following new paragraph:
       ``(7) Requirement for submission of utilization data for 
     certain physician administered drugs.--
       ``(A) Single source drugs.--In order for payment to be 
     available under section 1903(a) for a covered outpatient drug 
     that is a single source drug that is physician administered 
     under this title (as determined by the Secretary), and that 
     is administered on or after January 1, 2006, the State shall 
     provide for the collection and submission of such utilization 
     data and coding (such as J-codes and National Drug Code 
     numbers) for each such drug as the Secretary may specify as 
     necessary to identify the manufacturer of the drug in order 
     to secure rebates under this section for drugs administered 
     for which payment is made under this title.
       ``(B) Multiple source drugs.--
       ``(i) Identification of most frequently physician 
     administered multiple source drugs.--Not later than January 
     1, 2007, the Secretary shall publish a list of the 20 
     physician administered multiple source drugs that the 
     Secretary determines have the highest dollar volume of 
     physician administered drugs dispensed under this title. The 
     Secretary may modify such list from year to year to reflect 
     changes in such volume.
       ``(ii) Requirement.--In order for payment to be available 
     under section 1903(a) for a covered outpatient drug that is a 
     multiple source drug that is physician administered (as 
     determined by the Secretary), that is on the list published 
     under clause (i), and that is administered on or after 
     January 1, 2008, the State shall provide for the submission 
     of such utilization data and coding (such as J-codes and 
     National Drug Code numbers) for each such drug as the 
     Secretary may specify as necessary to identify the 
     manufacturer of the drug in order to secure rebates under 
     this section.
       ``(C) Use of ndc codes.--Not later than January 1, 2007, 
     the information shall be submitted under subparagraphs (A) 
     and (B)(ii) using National Drug Code codes unless the 
     Secretary specifies that an alternative coding system should 
     be used.
       ``(D) Hardship waiver.--The Secretary may delay the 
     application of subparagraph (A) or (B)(ii), or both, in the 
     case of a State to prevent hardship to States which require 
     additional time to implement the reporting system required 
     under the respective subparagraph.''.
       (b) Limitation on Payment.--Section 1903(i)(10) of such Act 
     (42 U.S.C. 1396b(i)(10)), is amended--
       (1) by striking ``and'' at the end of subparagraph (A);
       (2) by striking ``or'' at the end of subparagraph (B) and 
     inserting ``and''; and
       (3) by adding at the end the following new subparagraph:
       ``(C) with respect to covered outpatient drugs described in 
     section 1927(a)(7), unless information respecting utilization 
     data and coding on such drugs that is required to be 
     submitted under such section is submitted in accordance with 
     such section; or''.

     SEC. 6003. IMPROVED REGULATION OF DRUGS SOLD UNDER A NEW DRUG 
                   APPLICATION APPROVED UNDER SECTION 505(C) OF 
                   THE FEDERAL FOOD, DRUG, AND COSMETIC ACT.

       (a) Inclusion With Other Reported Average Manufacturer and 
     Best Prices.--Section 1927(b)(3)(A) of the Social Security 
     Act (42 U.S.C. 1396r-8(b)(3)(A)) is amended--
       (1) by striking clause (i) and inserting the following:
       ``(i) not later than 30 days after the last day of each 
     rebate period under the agreement--

       ``(I) on the average manufacturer price (as defined in 
     subsection (k)(1)) for covered outpatient drugs for the 
     rebate period under the agreement (including for all such 
     drugs that are sold under a new drug application approved 
     under section 505(c) of the Federal Food, Drug, and Cosmetic 
     Act); and

       ``(II) for single source drugs and innovator multiple 
     source drugs (including all such drugs that are sold under a 
     new drug application approved under section 505(c) of the 
     Federal Food, Drug, and Cosmetic Act), on the manufacturer's 
     best price (as defined in subsection (c)(1)(C)) for such 
     drugs for the rebate period under the agreement;''; and

       (2) in clause (ii), by inserting ``(including for such 
     drugs that are sold under a new drug application approved 
     under section 505(c) of the Federal Food, Drug, and Cosmetic 
     Act)'' after ``drugs''.
       (b) Conforming Amendments.--Section 1927 of such Act (42 
     U.S.C. 1396r-8) is amended--
       (1) in subsection (c)(1)(C)--
       (A) in clause (i), in the matter preceding subclause (I), 
     by inserting after ``or innovator multiple source drug of a 
     manufacturer'' the following: ``(including the lowest price 
     available to any entity for any such drug of a manufacturer 
     that is sold under a new drug application approved under 
     section 505(c) of the Federal Food, Drug, and Cosmetic 
     Act)''; and
       (B) in clause (ii)--
       (i) in subclause (II), by striking ``and'' at the end;
       (ii) in subclause (III), by striking the period at the end 
     and inserting ``; and''; and
       (iii) by adding at the end the following:

       ``(IV) in the case of a manufacturer that approves, allows, 
     or otherwise permits any other drug of the manufacturer to be 
     sold under a new drug application approved under section 
     505(c) of the Federal Food, Drug, and Cosmetic Act, shall be 
     inclusive of the lowest price for such authorized drug 
     available from the manufacturer during the rebate period to 
     any manufacturer, wholesaler, retailer, provider, health 
     maintenance organization, nonprofit entity, or governmental 
     entity within the United States, excluding those prices 
     described in subclauses (I) through (IV) of clause (i).''; 
     and

       (2) in subsection (k), as amended by section 6001(c)(1), by 
     adding at the end the following:
       ``(C) Inclusion of section 505(c) drugs.--In the case of a 
     manufacturer that approves, allows, or otherwise permits any 
     drug of the manufacturer to be sold under a new drug 
     application approved under section 505(c) of the Federal 
     Food, Drug, and Cosmetic Act, such term shall be inclusive of 
     the average price paid for such drug by wholesalers for drugs 
     distributed to the retail pharmacy class of trade.''.
       (c) Effective Date.--The amendments made by this section 
     take effect on January 1, 2007.

     SEC. 6004. CHILDREN'S HOSPITAL PARTICIPATION IN SECTION 340B 
                   DRUG DISCOUNT PROGRAM.

       (a) In General.--Section 1927(a)(5)(B) of the Social 
     Security Act (42 U.S.C. 1396r-8(a)(5)(B)) is amended by 
     inserting before the period at the end the following: ``and a 
     children's hospital described in section 1886(d)(1)(B)(iii) 
     which meets the requirements of clauses (i) and (iii) of 
     section 340B(b)(4)(L) of the Public Health Service Act and 
     which would meet the requirements of clause (ii) of such 
     section if that clause were applied by taking into account 
     the percentage of care provided by the hospital to patients 
     eligible for medical assistance under a State plan under this 
     title''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to drugs purchased on or after the date of the 
     enactment of this Act.

                CHAPTER 2--LONG-TERM CARE UNDER MEDICAID

              Subchapter A--Reform of Asset Transfer Rules

     SEC. 6011. LENGTHENING LOOK-BACK PERIOD; CHANGE IN BEGINNING 
                   DATE FOR PERIOD OF INELIGIBILITY.

       (a) Lengthening Look-Back Period for All Disposals to 5 
     Years.--Section 1917(c)(1)(B)(i) of the Social Security Act 
     (42 U.S.C. 1396p(c)(1)(B)(i)) is amended by inserting ``or in 
     the case of any other disposal of assets made on or after the 
     date of the enactment of the Deficit Reduction Act of 2005'' 
     before ``, 60 months''.
       (b) Change in Beginning Date for Period of Ineligibility.--
     Section 1917(c)(1)(D) of such Act (42 U.S.C. 1396p(c)(1)(D)) 
     is amended--
       (1) by striking ``(D) The date'' and inserting ``(D)(i) In 
     the case of a transfer of asset made before the date of the 
     enactment of the Deficit Reduction Act of 2005, the date''; 
     and
       (2) by adding at the end the following new clause:
       ``(ii) In the case of a transfer of asset made on or after 
     the date of the enactment of the Deficit Reduction Act of 
     2005, the date specified in this subparagraph is the first 
     day of a month during or after which assets have been 
     transferred for less than fair market value, or the date on 
     which the individual is eligible for medical assistance under 
     the State plan and would otherwise be receiving institutional 
     level care described in subparagraph (C) based on an approved 
     application for such care but for the application of the 
     penalty period, whichever is later, and which does not occur 
     during any other period of ineligibility under this 
     subsection.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transfers made on or after the date of the 
     enactment of this Act.
       (d) Availability of Hardship Waivers.--Each State shall 
     provide for a hardship waiver process in accordance with 
     section 1917(c)(2)(D) of the Social Security Act (42 U.S.C. 
     1396p(c)(2)(D))--
       (1) under which an undue hardship exists when application 
     of the transfer of assets provision would deprive the 
     individual--
       (A) of medical care such that the individual's health or 
     life would be endangered; or
       (B) of food, clothing, shelter, or other necessities of 
     life; and
       (2) which provides for--
       (A) notice to recipients that an undue hardship exception 
     exists;
       (B) a timely process for determining whether an undue 
     hardship waiver will be granted; and
       (C) a process under which an adverse determination can be 
     appealed.
       (e) Additional Provisions on Hardship Waivers.--
       (1) Application by facility.--Section 1917(c)(2) of the 
     Social Security Act (42 U.S.C. 1396p(c)(2)) is amended--
       (A) by striking the semicolon at the end of subparagraph 
     (D) and inserting a period; and

[[Page H12656]]

       (B) by adding after and below such subparagraph the 
     following:
     ``The procedures established under subparagraph (D) shall 
     permit the facility in which the institutionalized individual 
     is residing to file an undue hardship waiver application on 
     behalf of the individual with the consent of the individual 
     or the personal representative of the individual.''.
       (2) Authority to make bed hold payments for hardship 
     applicants.--Such section is further amended by adding at the 
     end the following: ``While an application for an undue 
     hardship waiver is pending under subparagraph (D) in the case 
     of an individual who is a resident of a nursing facility, if 
     the application meets such criteria as the Secretary 
     specifies, the State may provide for payments for nursing 
     facility services in order to hold the bed for the individual 
     at the facility, but not in excess of payments for 30 
     days.''.

     SEC. 6012. DISCLOSURE AND TREATMENT OF ANNUITIES.

       (a) In General.--Section 1917 of the Social Security Act 
     (42 U.S.C. 1396p) is amended by redesignating subsection (e) 
     as subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e)(1) In order to meet the requirements of this section 
     for purposes of section 1902(a)(18), a State shall require, 
     as a condition for the provision of medical assistance for 
     services described in subsection (c)(1)(C)(i) (relating to 
     long-term care services) for an individual, the application 
     of the individual for such assistance (including any 
     recertification of eligibility for such assistance) shall 
     disclose a description of any interest the individual or 
     community spouse has in an annuity (or similar financial 
     instrument, as may be specified by the Secretary), regardless 
     of whether the annuity is irrevocable or is treated as an 
     asset. Such application or recertification form shall include 
     a statement that under paragraph (2) the State becomes a 
     remainder beneficiary under such an annuity or similar 
     financial instrument by virtue of the provision of such 
     medical assistance.
       ``(2)(A) In the case of disclosure concerning an annuity 
     under subsection (c)(1)(F), the State shall notify the issuer 
     of the annuity of the right of the State under such 
     subsection as a preferred remainder beneficiary in the 
     annuity for medical assistance furnished to the individual. 
     Nothing in this paragraph shall be construed as preventing 
     such an issuer from notifying persons with any other 
     remainder interest of the State's remainder interest under 
     such subsection.
       ``(B) In the case of such an issuer receiving notice under 
     subparagraph (A), the State may require the issuer to notify 
     the State when there is a change in the amount of income or 
     principal being withdrawn from the amount that was being 
     withdrawn at the time of the most recent disclosure described 
     in paragraph (1). A State shall take such information into 
     account in determining the amount of the State's obligations 
     for medical assistance or in the individual's eligibility for 
     such assistance.
       ``(3) The Secretary may provide guidance to States on 
     categories of transactions that may be treated as a transfer 
     of asset for less than fair market value.
       ``(4) Nothing in this subsection shall be construed as 
     preventing a State from denying eligibility for medical 
     assistance for an individual based on the income or resources 
     derived from an annuity described in paragraph (1).''.
       (b) Requirement for State To Be Named As a Remainder 
     Beneficiary.--Section 1917(c)(1) of such Act (42 U.S.C. 
     1396p(c)(1)), is amended by adding at the end the following:
       ``(F) For purposes of this paragraph, the purchase of an 
     annuity shall be treated as the disposal of an asset for less 
     than fair market value unless--
       ``(i) the State is named as the remainder beneficiary in 
     the first position for at least the total amount of medical 
     assistance paid on behalf of the annuitant under this title; 
     or
       ``(ii) the State is named as such a beneficiary in the 
     second position after the community spouse or minor or 
     disabled child and is named in the first position if such 
     spouse or a representative of such child disposes of any such 
     remainder for less than fair market value.''.
       (c) Inclusion of Transfers To Purchase Balloon Annuities.--
     Section 1917(c)(1) of such Act (42 U.S.C. 1396p(c)(1)), as 
     amended by subsection (b), is amended by adding at the end 
     the following:
       ``(G) For purposes of this paragraph with respect to a 
     transfer of assets, the term `assets' includes an annuity 
     purchased by or on behalf of an annuitant who has applied for 
     medical assistance with respect to nursing facility services 
     or other long-term care services under this title unless--
       ``(i) the annuity is--
       ``(I) an annuity described in subsection (b) or (q) of 
     section 408 of the Internal Revenue Code of 1986; or
       ``(II) purchased with proceeds from--
       ``(aa) an account or trust described in subsection (a), 
     (c), (p) of section 408 of such Code;
       ``(bb) a simplified employee pension (within the meaning of 
     section 408(k) of such Code); or
       ``(cc) a Roth IRA described in section 408A of such Code; 
     or
       ``(ii) the annuity--
       ``(I) is irrevocable and nonassignable;
       ``(II) is actuarially sound (as determined in accordance 
     with actuarial publications of the Office of the Chief 
     Actuary of the Social Security Administration); and
       ``(III) provides for payments in equal amounts during the 
     term of the annuity, with no deferral and no balloon payments 
     made.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transactions (including the purchase of an 
     annuity) occurring on or after the date of the enactment of 
     this Act.

     SEC. 6013. APPLICATION OF ``INCOME-FIRST'' RULE IN APPLYING 
                   COMMUNITY SPOUSE'S INCOME BEFORE ASSETS IN 
                   PROVIDING SUPPORT OF COMMUNITY SPOUSE.

       (a) In General.--Section 1924(d) of the Social Security Act 
     (42 U.S.C. 1396r-5(d)) is amended by adding at the end the 
     following new subparagraph:
       ``(6) Application of `income first' rule to revision of 
     community spouse resource allowance.--For purposes of this 
     subsection and subsections (c) and (e), a State must consider 
     that all income of the institutionalized spouse that could be 
     made available to a community spouse, in accordance with the 
     calculation of the community spouse monthly income allowance 
     under this subsection, has been made available before the 
     State allocates to the community spouse an amount of 
     resources adequate to provide the difference between the 
     minimum monthly maintenance needs allowance and all income 
     available to the community spouse.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transfers and allocations made on or after the 
     date of the enactment of this Act by individuals who become 
     institutionalized spouses on or after such date.

     SEC. 6014. DISQUALIFICATION FOR LONG-TERM CARE ASSISTANCE FOR 
                   INDIVIDUALS WITH SUBSTANTIAL HOME EQUITY.

       (a) In General.--Section 1917 of the Social Security Act, 
     as amended by section 6012(a), is further amended by 
     redesignating subsection (f) as subsection (g) and by 
     inserting after subsection (e) the following new subsection:
       ``(f)(1)(A) Notwithstanding any other provision of this 
     title, subject to subparagraphs (B) and (C) of this paragraph 
     and paragraph (2), in determining eligibility of an 
     individual for medical assistance with respect to nursing 
     facility services or other long-term care services, the 
     individual shall not be eligible for such assistance if the 
     individual's equity interest in the individual's home exceeds 
     $500,000.
       ``(B) A State may elect, without regard to the requirements 
     of section 1902(a)(1) (relating to statewideness) and section 
     1902(a)(10)(B) (relating to comparability), to apply 
     subparagraph (A) by substituting for `$500,000', an amount 
     that exceeds such amount, but does not exceed $750,000.
       ``(C) The dollar amounts specified in this paragraph shall 
     be increased, beginning with 2011, from year to year based on 
     the percentage increase in the consumer price index for all 
     urban consumers (all items; United States city average), 
     rounded to the nearest $1,000.
       ``(2) Paragraph (1) shall not apply with respect to an 
     individual if--
       ``(A) the spouse of such individual, or
       ``(B) such individual's child who is under age 21, or (with 
     respect to States eligible to participate in the State 
     program established under title XVI) is blind or permanently 
     and totally disabled, or (with respect to States which are 
     not eligible to participate in such program) is blind or 
     disabled as defined in section 1614,

     is lawfully residing in the individual's home.
       ``(3) Nothing in this subsection shall be construed as 
     preventing an individual from using a reverse mortgage or 
     home equity loan to reduce the individual's total equity 
     interest in the home.
       ``(4) The Secretary shall establish a process whereby 
     paragraph (1) is waived in the case of a demonstrated 
     hardship.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to individuals who are determined eligible for 
     medical assistance with respect to nursing facility services 
     or other long-term care services based on an application 
     filed on or after January 1, 2006.

     SEC. 6015. ENFORCEABILITY OF CONTINUING CARE RETIREMENT 
                   COMMUNITIES (CCRC) AND LIFE CARE COMMUNITY 
                   ADMISSION CONTRACTS.

       (a) Admission Policies of Nursing Facilities.--Section 
     1919(c)(5) of the Social Security Act (42 U.S.C. 1396r(c)(5)) 
     is amended--
       (1) in subparagraph (A)(i)(II), by inserting ``subject to 
     clause (v),'' after ``(II)''; and
       (2) by adding at the end of subparagraph (B) the following 
     new clause:
       ``(v) Treatment of continuing care retirement communities 
     admission contracts.--Notwithstanding subclause (II) of 
     subparagraph (A)(i), subject to subsections (c) and (d) of 
     section 1924, contracts for admission to a State licensed, 
     registered, certified, or equivalent continuing care 
     retirement community or life care community, including 
     services in a nursing facility that is part of such 
     community, may require residents to spend on their care 
     resources declared for the purposes of admission before 
     applying for medical assistance.''.
       (b) Treatment of Entrance Fees.--Section 1917 of such Act 
     (42 U.S.C. 1396p), as amended by sections 6012(a) and 
     6014(a), is amended by redesignating subsection (g) as 
     subsection (h) and by inserting after subsection (f) the 
     following new subsection:
       ``(g) Treatment of Entrance Fees of Individuals Residing in 
     Continuing Care Retirement Communities.--
       ``(1) In general.--For purposes of determining an 
     individual's eligibility for, or amount of, benefits under a 
     State plan under this title, the rules specified in paragraph 
     (2) shall apply to individuals residing in continuing care 
     retirement communities or life care communities that collect 
     an entrance fee on admission from such individuals.
       ``(2) Treatment of entrance fee.--For purposes of this 
     subsection, an individual's entrance fee in a continuing care 
     retirement community or life care community shall be 
     considered a resource available to the individual to the 
     extent that--
       ``(A) the individual has the ability to use the entrance 
     fee, or the contract provides that the entrance fee may be 
     used, to pay for care should other resources or income of the 
     individual be insufficient to pay for such care;

[[Page H12657]]

       ``(B) the individual is eligible for a refund of any 
     remaining entrance fee when the individual dies or terminates 
     the continuing care retirement community or life care 
     community contract and leaves the community; and
       ``(C) the entrance fee does not confer an ownership 
     interest in the continuing care retirement community or life 
     care community.''.

     SEC. 6016. ADDITIONAL REFORMS OF MEDICAID ASSET TRANSFER 
                   RULES.

       (a) Requirement To Impose Partial Months of 
     Ineligibility.--Section 1917(c)(1)(E) of the Social Security 
     Act (42 U.S.C. 1396p(c)(1)(E)) is amended by adding at the 
     end the following:
       ``(iv) A State shall not round down, or otherwise disregard 
     any fractional period of ineligibility determined under 
     clause (i) or (ii) with respect to the disposal of assets.''.
       (b) Authority for States To Accumulate Multiple Transfers 
     Into One Penalty Period.--Section 1917(c)(1) of such Act (42 
     U.S.C. 1396p(c)(1)), as amended by subsections (b) and (c) of 
     section 6012, is amended by adding at the end the following:
       ``(H) Notwithstanding the preceding provisions of this 
     paragraph, in the case of an individual (or individual's 
     spouse) who makes multiple fractional transfers of assets in 
     more than 1 month for less than fair market value on or after 
     the applicable look-back date specified in subparagraph (B), 
     a State may determine the period of ineligibility applicable 
     to such individual under this paragraph by--
       ``(i) treating the total, cumulative uncompensated value of 
     all assets transferred by the individual (or individual's 
     spouse) during all months on or after the look-back date 
     specified in subparagraph (B) as 1 transfer for purposes of 
     clause (i) or (ii) (as the case may be) of subparagraph (E); 
     and
       ``(ii) beginning such period on the earliest date which 
     would apply under subparagraph (D) to any of such 
     transfers.''.
       (c) Inclusion of Transfer of Certain Notes and Loans 
     Assets.--Section 1917(c)(1) of such Act (42 U.S.C. 1396 
     p(c)(1)), as amended by subsection (b), is amended by adding 
     at the end the following:
       ``(I) For purposes of this paragraph with respect to a 
     transfer of assets, the term `assets' includes funds used to 
     purchase a promissory note, loan, or mortgage unless such 
     note, loan, or mortgage--
       ``(i) has a repayment term that is actuarially sound (as 
     determined in accordance with actuarial publications of the 
     Office of the Chief Actuary of the Social Security 
     Administration);
       ``(ii) provides for payments to be made in equal amounts 
     during the term of the loan, with no deferral and no balloon 
     payments made; and
       ``(iii) prohibits the cancellation of the balance upon the 
     death of the lender.
     In the case of a promissory note, loan, or mortgage that does 
     not satisfy the requirements of clauses (i) through (iii), 
     the value of such note, loan, or mortgage shall be the 
     outstanding balance due as of the date of the individual's 
     application for medical assistance for services described in 
     subparagraph (C).''.
       (d) Inclusion of Transfers To Purchase Life Estates.--
     Section 1917(c)(1) of such Act (42 U.S.C. 1396p(c)(1)), as 
     amended by subsection (c), is amended by adding at the end 
     the following:
       ``(J) For purposes of this paragraph with respect to a 
     transfer of assets, the term `assets' includes the purchase 
     of a life estate interest in another individual's home unless 
     the purchaser resides in the home for a period of at least 1 
     year after the date of the purchase.''.
       (e) Effective Dates.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by this section shall apply to 
     payments under title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.) for calendar quarters beginning on or 
     after the date of enactment of this Act, without regard to 
     whether or not final regulations to carry out such amendments 
     have been promulgated by such date.
       (2) Exceptions.--The amendments made by this section shall 
     not apply--
       (A) to medical assistance provided for services furnished 
     before the date of enactment;
       (B) with respect to assets disposed of on or before the 
     date of enactment of this Act; or
       (C) with respect to trusts established on or before the 
     date of enactment of this Act.
       (3) Extension of effective date for state law amendment.--
     In the case of a State plan under title XIX of the Social 
     Security Act (42 U.S.C. 1396 et seq.) 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 a provision of 
     this section, the State plan shall not be regarded as failing 
     to comply with the requirements of such title 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.

           Subchapter B--Expanded Access to Certain Benefits

     SEC. 6021. EXPANSION OF STATE LONG-TERM CARE PARTNERSHIP 
                   PROGRAM.

       (a) Expansion Authority.--
       (1) In general.--Section 1917(b) of the Social Security Act 
     (42 U.S.C. 1396p(b)) is amended--
       (A) in paragraph (1)(C)--
       (i) in clause (ii), by inserting ``and which satisfies 
     clause (iv), or which has a State plan amendment that 
     provides for a qualified State long-term care insurance 
     partnership (as defined in clause (iii))'' after ``1993,''; 
     and
       (ii) by adding at the end the following new clauses:
       ``(iii) For purposes of this paragraph, the term `qualified 
     State long-term care insurance partnership' means an approved 
     State plan amendment under this title that provides for the 
     disregard of any assets or resources in an amount equal to 
     the insurance benefit payments that are made to or on behalf 
     of an individual who is a beneficiary under a long-term care 
     insurance policy if the following requirements are met:
       ``(I) The policy covers an insured who was a resident of 
     such State when coverage first became effective under the 
     policy.
       ``(II) The policy is a qualified long-term care insurance 
     policy (as defined in section 7702B(b) of the Internal 
     Revenue Code of 1986) issued not earlier than the effective 
     date of the State plan amendment.
       ``(III) The policy meets the model regulations and the 
     requirements of the model Act specified in paragraph (5).
       ``(IV) If the policy is sold to an individual who--
       ``(aa) has not attained age 61 as of the date of purchase, 
     the policy provides compound annual inflation protection;
       ``(bb) has attained age 61 but has not attained age 76 as 
     of such date, the policy provides some level of inflation 
     protection; and
       ``(cc) has attained age 76 as of such date, the policy may 
     (but is not required to) provide some level of inflation 
     protection.
       ``(V) The State Medicaid agency under section 1902(a)(5) 
     provides information and technical assistance to the State 
     insurance department on the insurance department's role of 
     assuring that any individual who sells a long-term care 
     insurance policy under the partnership receives training and 
     demonstrates evidence of an understanding of such policies 
     and how they relate to other public and private coverage of 
     long-term care.
       ``(VI) The issuer of the policy provides regular reports to 
     the Secretary, in accordance with regulations of the 
     Secretary, that include notification regarding when benefits 
     provided under the policy have been paid and the amount of 
     such benefits paid, notification regarding when the policy 
     otherwise terminates, and such other information as the 
     Secretary determines may be appropriate to the administration 
     of such partnerships.
       ``(VII) The State does not impose any requirement affecting 
     the terms or benefits of such a policy unless the State 
     imposes such requirement on long-term care insurance policies 
     without regard to whether the policy is covered under the 
     partnership or is offered in connection with such a 
     partnership.
     In the case of a long-term care insurance policy which is 
     exchanged for another such policy, subclause (I) shall be 
     applied based on the coverage of the first such policy that 
     was exchanged. For purposes of this clause and paragraph (5), 
     the term `long-term care insurance policy' includes a 
     certificate issued under a group insurance contract
       ``(iv) With respect to a State which had a State plan 
     amendment approved as of May 14, 1993, such a State satisfies 
     this clause for purposes of clause (ii) if the Secretary 
     determines that the State plan amendment provides for 
     consumer protection standards which are no less stringent 
     than the consumer protection standards which applied under 
     such State plan amendment as of December 31, 2005.
       ``(v) The regulations of the Secretary required under 
     clause (iii)(VI) shall be promulgated after consultation with 
     the National Association of Insurance Commissioners, issuers 
     of long-term care insurance policies, States with experience 
     with long-term care insurance partnership plans, other 
     States, and representatives of consumers of long-term care 
     insurance policies, and shall specify the type and format of 
     the data and information to be reported and the frequency 
     with which such reports are to be made. The Secretary, as 
     appropriate, shall provide copies of the reports provided in 
     accordance with that clause to the State involved.
       ``(vi) The Secretary, in consultation with other 
     appropriate Federal agencies, issuers of long-term care 
     insurance, the National Association of Insurance 
     Commissioners, State insurance commissioners, States with 
     experience with long-term care insurance partnership plans, 
     other States, and representatives of consumers of long-term 
     care insurance policies, shall develop recommendations for 
     Congress to authorize and fund a uniform minimum data set to 
     be reported electronically by all issuers of long-term care 
     insurance policies under qualified State long-term care 
     insurance partnerships to a secure, centralized electronic 
     query and report-generating mechanism that the State, the 
     Secretary, and other Federal agencies can access.''; and
       (B) by adding at the end the following:
       ``(5)(A) For purposes of clause (iii)(III), the model 
     regulations and the requirements of the model Act specified 
     in this paragraph are:
       ``(i) In the case of the model regulation, the following 
     requirements:
       ``(I) Section 6A (relating to guaranteed renewal or 
     noncancellability), other than paragraph (5) thereof, and the 
     requirements of section 6B of the model Act relating to such 
     section 6A.
       ``(II) Section 6B (relating to prohibitions on limitations 
     and exclusions) other than paragraph (7) thereof.
       ``(III) Section 6C (relating to extension of benefits).
       ``(IV) Section 6D (relating to continuation or conversion 
     of coverage).
       ``(V) Section 6E (relating to discontinuance and 
     replacement of policies).
       ``(VI) Section 7 (relating to unintentional lapse).
       ``(VII) Section 8 (relating to disclosure), other than 
     sections 8F, 8G, 8H, and 8I thereof.

[[Page H12658]]

       ``(VIII) Section 9 (relating to required disclosure of 
     rating practices to consumer).
       ``(IX) Section 11 (relating to prohibitions against post-
     claims underwriting).
       ``(X) Section 12 (relating to minimum standards).
       ``(XI) Section 14 (relating to application forms and 
     replacement coverage).
       ``(XII) Section 15 (relating to reporting requirements).
       ``(XIII) Section 22 (relating to filing requirements for 
     marketing).
       ``(XIV) Section 23 (relating to standards for marketing), 
     including inaccurate completion of medical histories, other 
     than paragraphs (1), (6), and (9) of section 23C.
       ``(XV) Section 24 (relating to suitability).
       ``(XVI) Section 25 (relating to prohibition against 
     preexisting conditions and probationary periods in 
     replacement policies or certificates).
       ``(XVII) The provisions of section 26 relating to 
     contingent nonforfeiture benefits, if the policyholder 
     declines the offer of a nonforfeiture provision described in 
     paragraph (4).
       ``(XVIII) Section 29 (relating to standard format outline 
     of coverage).
       ``(XIX) Section 30 (relating to requirement to deliver 
     shopper's guide).
       ``(ii) In the case of the model Act, the following:
       ``(I) Section 6C (relating to preexisting conditions).
       ``(II) Section 6D (relating to prior hospitalization).
       ``(III) The provisions of section 8 relating to contingent 
     nonforfeiture benefits.
       ``(IV) Section 6F (relating to right to return).
       ``(V) Section 6G (relating to outline of coverage).
       ``(VI) Section 6H (relating to requirements for 
     certificates under group plans).
       ``(VII) Section 6J (relating to policy summary).
       ``(VIII) Section 6K (relating to monthly reports on 
     accelerated death benefits).
       ``(IX) Section 7 (relating to incontestability period).
       ``(B) For purposes of this paragraph and paragraph (1)(C)--
       ``(i) the terms `model regulation' and `model Act' mean the 
     long-term care insurance model regulation, and the long-term 
     care insurance model Act, respectively, promulgated by the 
     National Association of Insurance Commissioners (as adopted 
     as of October 2000);
       ``(ii) any provision of the model regulation or model Act 
     listed under subparagraph (A) shall be treated as including 
     any other provision of such regulation or Act necessary to 
     implement the provision; and
       ``(iii) with respect to a long-term care insurance policy 
     issued in a State, the policy shall be deemed to meet 
     applicable requirements of the model regulation or the model 
     Act if the State plan amendment under paragraph (1)(C)(iii) 
     provides that the State insurance commissioner for the State 
     certifies (in a manner satisfactory to the Secretary) that 
     the policy meets such requirements.
       ``(C) Not later than 12 months after the National 
     Association of Insurance Commissioners issues a revision, 
     update, or other modification of a model regulation or model 
     Act provision specified in subparagraph (A), or of any 
     provision of such regulation or Act that is substantively 
     related to a provision specified in such subparagraph, the 
     Secretary shall review the changes made to the provision, 
     determine whether incorporating such changes into the 
     corresponding provision specified in such subparagraph would 
     improve qualified State long-term care insurance 
     partnerships, and if so, shall incorporate the changes into 
     such provision.''.
       (2) State reporting requirements.--Nothing in clauses 
     (iii)(VI) and (v) of section 1917(b)(1)(C) of the Social 
     Security Act (as added by paragraph (1)) shall be construed 
     as prohibiting a State from requiring an issuer of a long-
     term care insurance policy sold in the State (regardless of 
     whether the policy is issued under a qualified State long-
     term care insurance partnership under section 
     1917(b)(1)(C)(iii) of such Act) to require the issuer to 
     report information or data to the State that is in addition 
     to the information or data required under such clauses.
       (3) Effective date.--A State plan amendment that provides 
     for a qualified State long-term care insurance partnership 
     under the amendments made by paragraph (1) may provide that 
     such amendment is effective for long-term care insurance 
     policies issued on or after a date, specified in the 
     amendment, that is not earlier than the first day of the 
     first calendar quarter in which the plan amendment was 
     submitted to the Secretary of Health and Human Services.
       (b) Standards for Reciprocal Recognition Among Partnership 
     States.--In order to permit portability in long-term care 
     insurance policies purchased under State long-term care 
     insurance partnerships, the Secretary of Health and Human 
     Services shall develop, not later than January 1, 2007, and 
     in consultation with the National Association of Insurance 
     Commissioners, issuers of long-term care insurance policies, 
     States with experience with long-term care insurance 
     partnership plans, other States, and representatives of 
     consumers of long-term care insurance policies, standards for 
     uniform reciprocal recognition of such policies among States 
     with qualified State long-term care insurance partnerships 
     under which--
       (1) benefits paid under such policies will be treated the 
     same by all such States; and
       (2) States with such partnerships shall be subject to such 
     standards unless the State notifies the Secretary in writing 
     of the State's election to be exempt from such standards.
       (c) Annual Reports to Congress.--
       (1) In general.--The Secretary of Health and Human Services 
     shall annually report to Congress on the long-term care 
     insurance partnerships established in accordance with section 
     1917(b)(1)(C)(ii) of the Social Security Act (42 U.S.C. 
     1396p(b)(1)(C)(ii)) (as amended by subsection (a)(1)). Such 
     reports shall include analyses of the extent to which such 
     partnerships expand or limit access of individuals to long-
     term care and the impact of such partnerships on Federal and 
     State expenditures under the Medicare and Medicaid programs. 
     Nothing in this section shall be construed as requiring the 
     Secretary to conduct an independent review of each long-term 
     care insurance policy offered under or in connection with 
     such a partnership.
       (2) Appropriation.--Out of any funds in the Treasury not 
     otherwise appropriated, there is appropriated to the 
     Secretary of Health and Human Services, $1,000,000 for the 
     period of fiscal years 2006 through 2010 to carry out 
     paragraph (1).
       (d) National Clearinghouse for Long-Term Care 
     Information.--
       (1) Establishment.--The Secretary of Health and Human 
     Services shall establish a National Clearinghouse for Long-
     Term Care Information. The Clearinghouse may be established 
     through a contract or interagency agreement.
       (2) Duties.--
       (A) In general.--The National Clearinghouse for Long-Term 
     Care Information shall--
       (i) educate consumers with respect to the availability and 
     limitations of coverage for long-term care under the Medicaid 
     program and provide contact information for obtaining State-
     specific information on long-term care coverage, including 
     eligibility and estate recovery requirements under State 
     Medicaid programs;
       (ii) provide objective information to assist consumers with 
     the decisionmaking process for determining whether to 
     purchase long-term care insurance or to pursue other private 
     market alternatives for purchasing long-term care and provide 
     contact information for additional objective resources on 
     planning for long-term care needs; and
       (iii) maintain a list of States with State long-term care 
     insurance partnerships under the Medicaid program that 
     provide reciprocal recognition of long-term care insurance 
     policies issued under such partnerships.
       (B) Requirement.--In providing information to consumers on 
     long-term care in accordance with this subsection, the 
     National Clearinghouse for Long-Term Care Information shall 
     not advocate in favor of a specific long-term care insurance 
     provider or a specific long-term care insurance policy.
       (3) Appropriation.--Out of any funds in the Treasury not 
     otherwise appropriated, there is appropriated to carry out 
     this subsection, $3,000,000 for each of fiscal years 2006 
     through 2010.

       CHAPTER 3--ELIMINATING FRAUD, WASTE, AND ABUSE IN MEDICAID

     SEC. 6032. ENCOURAGING THE ENACTMENT OF STATE FALSE CLAIMS 
                   ACTS.

       (a) In General.--Title XIX of the Social Security Act (42 
     U.S.C. 1396 et seq.) is amended by inserting after section 
     1908A the following:


  ``STATE FALSE CLAIMS ACT REQUIREMENTS FOR INCREASED STATE SHARE OF 
                               RECOVERIES

       ``Sec. 1909. (a) In General.--Notwithstanding section 
     1905(b), if a State has in effect a law relating to false or 
     fraudulent claims that meets the requirements of subsection 
     (b), the Federal medical assistance percentage with respect 
     to any amounts recovered under a State action brought under 
     such law, shall be decreased by 10 percentage points.
       ``(b) Requirements.--For purposes of subsection (a), the 
     requirements of this subsection are that the Inspector 
     General of the Department of Health and Human Services, in 
     consultation with the Attorney General, determines that the 
     State has in effect a law that meets the following 
     requirements:
       ``(1) The law establishes liability to the State for false 
     or fraudulent claims described in section 3729 of title 31, 
     United States Code, with respect to any expenditure described 
     in section 1903(a).
       ``(2) The law contains provisions that are at least as 
     effective in rewarding and facilitating qui tam actions for 
     false or fraudulent claims as those described in sections 
     3730 through 3732 of title 31, United States Code.
       ``(3) The law contains a requirement for filing an action 
     under seal for 60 days with review by the State Attorney 
     General.
       ``(4) The law contains a civil penalty that is not less 
     than the amount of the civil penalty authorized under section 
     3729 of title 31, United States Code.
       ``(c) Deemed Compliance.--A State that, as of January 1, 
     2007, has a law in effect that meets the requirements of 
     subsection (b) shall be deemed to be in compliance with such 
     requirements for so long as the law continues to meet such 
     requirements.
       ``(d) No Preclusion of Broader Laws.--Nothing in this 
     section shall be construed as prohibiting a State that has in 
     effect a law that establishes liability to the State for 
     false or fraudulent claims described in section 3729 of title 
     31, United States Code, with respect to programs in addition 
     to the State program under this title, or with respect to 
     expenditures in addition to expenditures described in section 
     1903(a), from being considered to be in compliance with the 
     requirements of subsection (a) so long as the law meets such 
     requirements.''.
       (b) Effective Date.--Except as provided in section 6035(e), 
     the amendments made by this section take effect on January 1, 
     2007.

     SEC. 6033. EMPLOYEE EDUCATION ABOUT FALSE CLAIMS RECOVERY.

       (a) In General.--Section 1902(a) of the Social Security Act 
     (42 U.S.C. 1396a(a)) is amended--
       (1) in paragraph (66), by striking ``and'' at the end;
       (2) in paragraph (67) by striking the period at the end and 
     inserting ``; and''; and

[[Page H12659]]

       (3) by inserting after paragraph (67) the following:
       ``(68) provide that any entity that receives or makes 
     annual payments under the State plan of at least $5,000,000, 
     as a condition of receiving such payments, shall--
       ``(A) establish written policies for all employees of the 
     entity (including management), and of any contractor or agent 
     of the entity, that provide detailed information about the 
     False Claims Act established under sections 3729 through 3733 
     of title 31, United States Code, administrative remedies for 
     false claims and statements established under chapter 38 of 
     title 31, United States Code, any State laws pertaining to 
     civil or criminal penalties for false claims and statements, 
     and whistleblower protections under such laws, with respect 
     to the role of such laws in preventing and detecting fraud, 
     waste, and abuse in Federal health care programs (as defined 
     in section 1128B(f));
       ``(B) include as part of such written policies, detailed 
     provisions regarding the entity's policies and procedures for 
     detecting and preventing fraud, waste, and abuse; and
       ``(C) include in any employee handbook for the entity, a 
     specific discussion of the laws described in subparagraph 
     (A), the rights of employees to be protected as 
     whistleblowers, and the entity's policies and procedures for 
     detecting and preventing fraud, waste, and abuse.''.
       (b) Effective Date.--Except as provided in section 6035(e), 
     the amendments made by subsection (a) take effect on January 
     1, 2007.

     SEC. 6034. PROHIBITION ON RESTOCKING AND DOUBLE BILLING OF 
                   PRESCRIPTION DRUGS.

       (a) In General.--Section 1903(i)(10) of the Social Security 
     Act (42 U.S.C. 1396b(i)), as amended by section 6002(b), is 
     amended--
       (1) in subparagraph (B), by striking ``and'' at the end;
       (2) in subparagraph (C), by striking ``; or'' at the end 
     and inserting ``, and''; and
       (3) by adding at the end the following:
       ``(D) with respect to any amount expended for reimbursement 
     to a pharmacy under this title for the ingredient cost of a 
     covered outpatient drug for which the pharmacy has already 
     received payment under this title (other than with respect to 
     a reasonable restocking fee for such drug); or''.
       (b) Effective Date.--The amendments made by subsection (a) 
     take effect on the first day of the first fiscal year quarter 
     that begins after the date of enactment of this Act.

     SEC. 6035. MEDICAID INTEGRITY PROGRAM.

       (a) Establishment of Medicaid Integrity Program.--Title XIX 
     of the Social Security Act (42 U.S.C. 1396 et seq.) is 
     amended--
       (1) by redesignating section 1936 as section 1937; and
       (2) by inserting after section 1935 the following:


                      ``MEDICAID INTEGRITY PROGRAM

       ``Sec. 1936. (a) In General.--There is hereby established 
     the Medicaid Integrity Program (in this section referred to 
     as the `Program') under which the Secretary shall promote the 
     integrity of the program under this title by entering into 
     contracts in accordance with this section with eligible 
     entities to carry out the activities described in subsection 
     (b).
       ``(b) Activities Described--Activities described in this 
     subsection are as follows:
       ``(1) Review of the actions of individuals or entities 
     furnishing items or services (whether on a fee-for-service, 
     risk, or other basis) for which payment may be made under a 
     State plan approved under this title (or under any waiver of 
     such plan approved under section 1115) to determine whether 
     fraud, waste, or abuse has occurred, is likely to occur, or 
     whether such actions have any potential for resulting in an 
     expenditure of funds under this title in a manner which is 
     not intended under the provisions of this title.
       ``(2) Audit of claims for payment for items or services 
     furnished, or administrative services rendered, under a State 
     plan under this title, including--
       ``(A) cost reports;
       ``(B) consulting contracts; and
       ``(C) risk contracts under section 1903(m).
       ``(3) Identification of overpayments to individuals or 
     entities receiving Federal funds under this title.
       ``(4) Education of providers of services, managed care 
     entities, beneficiaries, and other individuals with respect 
     to payment integrity and quality of care.
       ``(c) Eligible Entity and Contracting Requirements.--
       ``(1) In general.--An entity is eligible to enter into a 
     contract under the Program to carry out any of the activities 
     described in subsection (b) if the entity satisfies the 
     requirements of paragraphs (2) and (3).
       ``(2) Eligibility requirements.--The requirements of this 
     paragraph are the following:
       ``(A) The entity has demonstrated capability to carry out 
     the activities described in subsection (b).
       ``(B) In carrying out such activities, the entity agrees to 
     cooperate with the Inspector General of the Department of 
     Health and Human Services, the Attorney General, and other 
     law enforcement agencies, as appropriate, in the 
     investigation and deterrence of fraud and abuse in relation 
     to this title and in other cases arising out of such 
     activities.
       ``(C) The entity complies with such conflict of interest 
     standards as are generally applicable to Federal acquisition 
     and procurement.
       ``(D) The entity meets such other requirements as the 
     Secretary may impose.
       ``(3) Contracting requirements.--The entity has contracted 
     with the Secretary in accordance with such procedures as the 
     Secretary shall by regulation establish, except that such 
     procedures shall include the following:
       ``(A) Procedures for identifying, evaluating, and resolving 
     organizational conflicts of interest that are generally 
     applicable to Federal acquisition and procurement.
       ``(B) Competitive procedures to be used--
       ``(i) when entering into new contracts under this section;
       ``(ii) when entering into contracts that may result in the 
     elimination of responsibilities under section 202(b) of the 
     Health Insurance Portability and Accountability Act of 1996; 
     and
       ``(iii) at any other time considered appropriate by the 
     Secretary.
       ``(C) Procedures under which a contract under this section 
     may be renewed without regard to any provision of law 
     requiring competition if the contractor has met or exceeded 
     the performance requirements established in the current 
     contract.
     The Secretary may enter into such contracts without regard to 
     final rules having been promulgated.
       ``(4) Limitation on contractor liability.--The Secretary 
     shall by regulation provide for the limitation of a 
     contractor's liability for actions taken to carry out a 
     contract under the Program, and such regulation shall, to the 
     extent the Secretary finds appropriate, employ the same or 
     comparable standards and other substantive and procedural 
     provisions as are contained in section 1157.
       ``(d) Comprehensive Plan for Program Integrity.--
       ``(1) 5-year plan.--With respect to the 5 fiscal year 
     period beginning with fiscal year 2006, and each such 5-
     fiscal year period that begins thereafter, the Secretary 
     shall establish a comprehensive plan for ensuring the 
     integrity of the program established under this title by 
     combatting fraud, waste, and abuse.
       ``(2) Consultation.--Each 5-fiscal year plan established 
     under paragraph (1) shall be developed by the Secretary in 
     consultation with the Attorney General, the Director of the 
     Federal Bureau of Investigation, the Comptroller General of 
     the United States, the Inspector General of the Department of 
     Health and Human Services, and State officials with 
     responsibility for controlling provider fraud and abuse under 
     State plans under this title.
       ``(e) Appropriation.--
       ``(1) In general.--Out of any money in the Treasury of the 
     United States not otherwise appropriated, there are 
     appropriated to carry out the Medicaid Integrity Program 
     under this section, without further appropriation--
       ``(A) for fiscal year 2006, $5,000,000;
       ``(B) for each of fiscal years 2007 and 2008, $50,000,000; 
     and
       ``(C) for each fiscal year thereafter, $75,000,000.
       ``(2) Availability.--Amounts appropriated pursuant to 
     paragraph (1) shall remain available until expended.
       ``(3) Increase in cms staffing devoted to protecting 
     medicaid program integrity.--From the amounts appropriated 
     under paragraph (1), the Secretary shall increase by 100 the 
     number of full-time equivalent employees whose duties consist 
     solely of protecting the integrity of the Medicaid program 
     established under this section by providing effective support 
     and assistance to States to combat provider fraud and abuse.
       ``(4) Annual report.--Not later than 180 days after the end 
     of each fiscal year (beginning with fiscal year 2006), the 
     Secretary shall submit a report to Congress which 
     identifies--
       ``(A) the use of funds appropriated pursuant to paragraph 
     (1); and
       ``(B) the effectiveness of the use of such funds.''.
       (b) State Requirement To Cooperate With Integrity Program 
     Efforts.--Section 1902(a) of such Act (42 U.S.C. 1396a(a)), 
     as amended by section 6033(a), is amended--
       (1) in paragraph (67), by striking ``and'' at the end;
       (2) in paragraph (68), by striking the period at the end 
     and inserting ``; and''; and
       (3) by inserting after paragraph (68), the following:
       ``(69) provide that the State must comply with any 
     requirements determined by the Secretary to be necessary for 
     carrying out the Medicaid Integrity Program established under 
     section 1936.''.
       (c) Increased Funding for Medicaid Fraud and Abuse Control 
     Activities.--
       (1) In general.--Out of any money in the Treasury of the 
     United States not otherwise appropriated, there are 
     appropriated to the Office of the Inspector General of the 
     Department of Health and Human Services, without further 
     appropriation, $25,000,000 for each of fiscal years 2006 
     through 2010, for activities of such Office with respect to 
     the Medicaid program under title XIX of the Social Security 
     Act (42 U.S.C. 1396 et seq.).
       (2) Availability; amounts in addition to other amounts 
     appropriated for such activities.--Amounts appropriated 
     pursuant to paragraph (1) shall--
       (A) remain available until expended; and
       (B) be in addition to any other amounts appropriated or 
     made available to the Office of the Inspector General of the 
     Department of Health and Human Services for activities of 
     such Office with respect to the Medicaid program.
       (3) Annual report.--Not later than 180 days after the end 
     of each fiscal year (beginning with fiscal year 2006), the 
     Inspector General of the Department of Health and Human 
     Services shall submit a report to Congress which identifies--
       (A) the use of funds appropriated pursuant to paragraph 
     (1); and
       (B) the effectiveness of the use of such funds.
       (d) National Expansion of the Medicare-Medicaid (Medi-Medi) 
     Data Match Pilot Program.--
       (1) Requirement of the medicare integrity program.--Section 
     1893 of the Social Security Act (42 U.S.C. 1395ddd) is 
     amended--

[[Page H12660]]

       (A) in subsection (b), by adding at the end the following:
       ``(6) The Medicare-Medicaid Data Match Program in 
     accordance with subsection (g).''; and
       (B) by adding at the end the following:
       ``(g) Medicare-Medicaid Data Match Program.--
       ``(1) Expansion of program.--
       ``(A) In general.--The Secretary shall enter into contracts 
     with eligible entities for the purpose of ensuring that, 
     beginning with 2006, the Medicare-Medicaid Data Match Program 
     (commonly referred to as the `Medi-Medi Program') is 
     conducted with respect to the program established under this 
     title and State Medicaid programs under title XIX for the 
     purpose of--
       ``(i) identifying program vulnerabilities in the program 
     established under this title and the Medicaid program 
     established under title XIX through the use of computer 
     algorithms to look for payment anomalies (including billing 
     or billing patterns identified with respect to service, time, 
     or patient that appear to be suspect or otherwise 
     implausible);
       ``(ii) working with States, the Attorney General, and the 
     Inspector General of the Department of Health and Human 
     Services to coordinate appropriate actions to protect the 
     Federal and State share of expenditures under the Medicaid 
     program under title XIX, as well as the program established 
     under this title; and
       ``(iii) increasing the effectiveness and efficiency of both 
     such programs through cost avoidance, savings, and 
     recoupments of fraudulent, wasteful, or abusive expenditures.
       ``(B) Reporting requirements.--The Secretary shall make 
     available in a timely manner any data and statistical 
     information collected by the Medi-Medi Program to the 
     Attorney General, the Director of the Federal Bureau of 
     Investigation, the Inspector General of the Department of 
     Health and Human Services, and the States (including a 
     medicaid fraud and abuse control unit described in section 
     1903(q)). Such information shall be disseminated no less 
     frequently than quarterly.
       ``(2) Limited waiver authority.--The Secretary shall waive 
     only such requirements of this section and of titles XI and 
     XIX as are necessary to carry out paragraph (1).''.
       (2) Funding.--Section 1817(k)(4) of such Act (42 U.S.C. 
     1395i(k)(4)), as amended by section 5204 of this Act, is 
     amended--
       (A) in subparagraph (A), by striking ``subparagraph (B)'' 
     and inserting ``subparagraphs (B), (C), and (D)''; and
       (B) by adding at the end the following:
       ``(D) Expansion of the medicare-medicaid data match 
     program.--The amount appropriated under subparagraph (A) for 
     a fiscal year is further increased as follows for purposes of 
     carrying out section 1893(b)(6) for the respective fiscal 
     year:
       ``(i) $12,000,000 for fiscal year 2006.
       ``(ii) $24,000,000 for fiscal year 2007.
       ``(iii) $36,000,000 for fiscal year 2008.
       ``(iv) $48,000,000 for fiscal year 2009.
       ``(v) $60,000,000 for fiscal year 2010 and each fiscal year 
     thereafter.''.
       (e) Delayed Effective Date for Chapter.--Except as 
     otherwise provided in this chapter, in the case of a State 
     plan under title XIX of the Social Security Act which the 
     Secretary determines requires State legislation in order for 
     the plan to meet the additional requirements imposed by the 
     amendments made by a provision of this chapter, the State 
     plan shall not be regarded as failing to comply with the 
     requirements of such Act 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 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 shall be 
     considered to be a separate regular session of the State 
     legislature.

     SEC. 6036. ENHANCING THIRD PARTY IDENTIFICATION AND PAYMENT.

       (a) Clarification of Third Parties Legally Responsible for 
     Payment of a Claim for a Health Care Item or Service.--
     Section 1902(a)(25) of the Social Security Act (42 U.S.C. 
     1396a(a)(25)) is amended--
       (1) in subparagraph (A), in the matter preceding clause 
     (i)--
       (A) by inserting ``, self-insured plans'' after ``health 
     insurers''; and
       (B) by striking ``and health maintenance organizations'' 
     and inserting ``managed care organizations, pharmacy benefit 
     managers, or other parties that are, by statute, contract, or 
     agreement, legally responsible for payment of a claim for a 
     health care item or service''; and
       (2) in subparagraph (G)--
       (A) by inserting ``a self-insured plan,'' after ``1974,''; 
     and
       (B) by striking ``and a health maintenance organization'' 
     and inserting ``a managed care organization, a pharmacy 
     benefit manager, or other party that is, by statute, 
     contract, or agreement, legally responsible for payment of a 
     claim for a health care item or service''.
        (b) Requirement for Third Parties To Provide the State 
     With Coverage Eligibility and Claims Data.--Section 
     1902(a)(25) of such Act (42 U.S.C. 1396a(a)(25)) is amended--
       (1) in subparagraph (G), by striking ``and'' at the end;
       (2) in subparagraph (H), by adding ``and'' after the 
     semicolon at the end; and
       (3) by inserting after subparagraph (H), the following:
       ``(I) that the State shall provide assurances satisfactory 
     to the Secretary that the State has in effect laws requiring 
     health insurers, including self-insured plans, group health 
     plans (as defined in section 607(1) of the Employee 
     Retirement Income Security Act of 1974), service benefit 
     plans, managed care organizations, pharmacy benefit managers, 
     or other parties that are, by statute, contract, or 
     agreement, legally responsible for payment of a claim for a 
     health care item or service, as a condition of doing business 
     in the State, to--
       ``(i) provide, with respect to individuals who are eligible 
     for, or are provided, medical assistance under the State 
     plan, upon the request of the State, information to determine 
     during what period the individual or their spouses or their 
     dependents may be (or may have been) covered by a health 
     insurer and the nature of the coverage that is or was 
     provided by the health insurer (including the name, address, 
     and identifying number of the plan) in a manner prescribed by 
     the Secretary;
       ``(ii) accept the State's right of recovery and the 
     assignment to the State of any right of an individual or 
     other entity to payment from the party for an item or service 
     for which payment has been made under the State plan;
       ``(iii) respond to any inquiry by the State regarding a 
     claim for payment for any health care item or service that is 
     submitted not later than 3 years after the date of the 
     provision of such health care item or service; and
       ``(iv) agree not to deny a claim submitted by the State 
     solely on the basis of the date of submission of the claim, 
     the type or format of the claim form, or a failure to present 
     proper documentation at the point-of-sale that is the basis 
     of the claim, if--

       ``(I) the claim is submitted by the State within the 3-year 
     period beginning on the date on which the item or service was 
     furnished; and
       ``(II) any action by the State to enforce its rights with 
     respect to such claim is commenced within 6 years of the 
     State's submission of such claim;''.

       (c) Effective Date.--Except as provided in section 6035(e), 
     the amendments made by this section take effect on January 1, 
     2006.

     SEC. 6037. IMPROVED ENFORCEMENT OF DOCUMENTATION 
                   REQUIREMENTS.

       (a) In General.--Section 1903 of the Social Security Act 
     (42 U.S.C. 1396b) is amended--
       (1) in subsection (i), as amended by section 104 of Public 
     Law 109-91
       (A) by striking ``or'' at the end of paragraph (20);
       (B) by striking the period at the end of paragraph (21) and 
     inserting ``; or''; and
       (C) by inserting after paragraph (21) the following new 
     paragraph:
       ``(22) with respect to amounts expended for medical 
     assistance for an individual who declares under section 
     1137(d)(1)(A) to be a citizen or national of the United 
     States for purposes of establishing eligibility for benefits 
     under this title, unless the requirement of subsection (x) is 
     met.''; and
       (2) by adding at the end the following new subsection:
       ``(x)(1) For purposes of subsection (i)(23), the 
     requirement of this subsection is, with respect to an 
     individual declaring to be a citizen or national of the 
     United States, that, subject to paragraph (2), there is 
     presented satisfactory documentary evidence of citizenship or 
     nationality (as defined in paragraph (3)) of the individual.
       ``(2) The requirement of paragraph (1) shall not apply to 
     an alien who is eligible for medical assistance under this 
     title--
       ``(A) and is entitled to or enrolled for benefits under any 
     part of title XVIII;
       ``(B) on the basis of receiving supplemental security 
     income benefits under title XVI; or
       ``(C) on such other basis as the Secretary may specify 
     under which satisfactory documentary evidence of citizenship 
     or nationality had been previously presented.
       ``(3)(A) For purposes of this subsection, the term 
     `satisfactory documentary evidence of citizenship or 
     nationality' means--
       ``(i) any document described in subparagraph (B); or
       ``(ii) a document described in subparagraph (C) and a 
     document described in subparagraph (D).
       ``(B) The following are documents described in this 
     subparagraph:
       ``(i) A United States passport.
       ``(ii) Form N-550 or N-570 (Certificate of Naturalization).
       ``(iii) Form N-560 or N-561 (Certificate of United States 
     Citizenship).
       ``(iv) A valid State-issued driver's license or other 
     identity document described in section 274A(b)(1)(D) of the 
     Immigration and Nationality Act, but only if the State 
     issuing the license or such document requires proof of United 
     States citizenship before issuance of such license or 
     document or obtains a social security number from the 
     applicant and verifies before certification that such number 
     is valid and assigned to the applicant who is a citizen.
       ``(v) Such other document as the Secretary may specify, by 
     regulation, that provides proof of United States citizenship 
     or nationality and that provides a reliable means of 
     documentation of personal identity.
       ``(C) The following are documents described in this 
     subparagraph:
       ``(i) A certificate of birth in the United States.
       ``(ii) Form FS-545 or Form DS-1350 (Certification of Birth 
     Abroad).
       ``(iii) Form I-97 (United States Citizen Identification 
     Card).
       ``(iv) Form FS-240 (Report of Birth Abroad of a Citizen of 
     the United States).
       ``(v) Such other document (not described in subparagraph 
     (B)(iv)) as the Secretary may specify that provides proof of 
     United States citizenship or nationality.
       ``(D) The following are documents described in this 
     subparagraph:
       ``(i) Any identity document described in section 
     274A(b)(1)(D) of the Immigration and Nationality Act.
       ``(ii) Any other documentation of personal identity of such 
     other type as the Secretary finds, by regulation, provides a 
     reliable means of identification.

[[Page H12661]]

       ``(E) A reference in this paragraph to a form includes a 
     reference to any successor form.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to determinations of initial eligibility for 
     medical assistance made on or after July 1, 2006, and to 
     redeterminations of eligibility made on or after such date in 
     the case of individuals for whom the requirement of section 
     1903(z) of the Social Security Act, as added by such 
     amendments, was not previously met.
       (c) Implementation Requirement.--As soon as practicable 
     after the date of enactment of this Act, the Secretary of 
     Health and Human Services shall establish an outreach program 
     that is designed to educate individuals who are likely to be 
     affected by the requirements of subsections (i)(23) and (x) 
     of section 1903 of the Social Security Act (as added by 
     subsection (a)) about such requirements and how they may be 
     satisfied.

          CHAPTER 4--FLEXIBILITY IN COST SHARING AND BENEFITS

     SEC. 6041. STATE OPTION FOR ALTERNATIVE MEDICAID PREMIUMS AND 
                   COST SHARING.

       (a) In General.--Title XIX of the Social Security Act is 
     amended by inserting after section 1916 the following new 
     section:


        ``State option for alternative premiums and cost sharing

       ``Sec. 1916A. (a) State Flexibility.--
       ``(1) In general.--Notwithstanding sections 1916 and 
     1902(a)(10)(B), a State, at its option and through a State 
     plan amendment, may impose premiums and cost sharing for any 
     group of individuals (as specified by the State) and for any 
     type of services (other than drugs for which cost sharing may 
     be imposed under subsection (c)), and may vary such premiums 
     and cost sharing among such groups or types, consistent with 
     the limitations established under this section. Nothing in 
     this section shall be construed as superseding (or preventing 
     the application of) section 1916(g).
       ``(2) Definitions.--In this section:
       ``(A) Premium.--The term `premium' includes any enrollment 
     fee or similar charge.
       ``(B) Cost sharing.--The term `cost sharing' includes any 
     deduction, copayment, or similar charge.
       ``(b) Limitations on Exercise of Authority.--
       ``(1) Individuals with family income between 100 and 150 
     percent of the poverty line.--In the case of an individual 
     whose family income exceeds 100 percent, but does not exceed 
     150 percent, of the poverty line applicable to a family of 
     the size involved, subject to subsections (c)(2) and 
     (e)(2)(A)--
       ``(A) no premium may be imposed under the plan; and
       ``(B) with respect to cost sharing--
       ``(i) the cost sharing imposed under subsection (a) with 
     respect to any item or service may not exceed 10 percent of 
     the cost of such item or service; and
       ``(ii) the total aggregate amount of cost sharing imposed 
     under this section (including any cost sharing imposed under 
     subsection (c) or (e)) for all individuals in the family may 
     not exceed 5 percent of the family income of the family 
     involved, as applied on a quarterly or monthly basis (as 
     specified by the State).
       ``(2) Individuals with family income above 150 percent of 
     the poverty line.--In the case of an individual whose family 
     income exceeds 150 percent of the poverty line applicable to 
     a family of the size involved, subject to subsections (c)(2) 
     and (e)(2)(A)--
       ``(A) the total aggregate amount of premiums and cost 
     sharing imposed under this section (including any cost 
     sharing imposed under subsection (c) or (e)) for all 
     individuals in the family may not exceed 5 percent of the 
     family income of the family involved, as applied on a 
     quarterly or monthly basis (as specified by the State); and
       ``(B) with respect to cost sharing, the cost sharing 
     imposed with respect to any item or service under subsection 
     (a) may not exceed 20 percent of the cost of such item or 
     service.
       ``(3) Additional limitations.--
       ``(A) Premiums.--No premiums shall be imposed under this 
     section with respect to the following:
       ``(i) Individuals under 18 years of age that are required 
     to be provided medical assistance under section 
     1902(a)(10)(A)(i), and including individuals with respect to 
     whom aid or assistance is made available under part B of 
     title IV to children in foster care and individuals with 
     respect to whom adoption or foster care assistance is made 
     available under part E of such title, without regard to age.
       ``(ii) Pregnant women.
       ``(iii) Any terminally ill individual who is receiving 
     hospice care (as defined in section 1905(o)).
       ``(iv) Any individual who is an inpatient in a hospital, 
     nursing facility, intermediate care facility for the mentally 
     retarded, or other medical institution, if such individual is 
     required, as a condition of receiving services in such 
     institution under the State plan, to spend for costs of 
     medical care all but a minimal amount of the individual's 
     income required for personal needs.
       ``(v) Women who are receiving medical assistance by virtue 
     of the application of sections 1902(a)(10)(A)(ii)(XVIII) and 
     1902(aa).
       ``(B) Cost sharing.--Subject to the succeeding provisions 
     of this section, no cost sharing shall be imposed under 
     subsection (a) with respect to the following:
       ``(i) Services furnished to individuals under 18 years of 
     age that are required to be provided medical assistance under 
     section 1902(a)(10)(A)(i), and including services furnished 
     to individuals with respect to whom aid or assistance is made 
     available under part B of title IV to children in foster care 
     and individuals with respect to whom adoption or foster care 
     assistance is made available under part E of such title, 
     without regard to age.
       ``(ii) Preventive services (such as well baby and well 
     child care and immunizations) provided to children under 18 
     years of age regardless of family income.
       ``(iii) Services furnished to pregnant women, if such 
     services relate to the pregnancy or to any other medical 
     condition which may complicate the pregnancy.
       ``(iv) Services furnished to a terminally ill individual 
     who is receiving hospice care (as defined in section 
     1905(o)).
       ``(v) Services furnished to any individual who is an 
     inpatient in a hospital, nursing facility, intermediate care 
     facility for the mentally retarded, or other medical 
     institution, if such individual is required, as a condition 
     of receiving services in such institution under the State 
     plan, to spend for costs of medical care all but a minimal 
     amount of the individual's income required for personal 
     needs.
       ``(vi) Emergency services (as defined by the Secretary for 
     purposes of section 1916(a)(2)(D)).
       ``(vii) Family planning services and supplies described in 
     section 1905(a)(4)(C).
       ``(viii) Services furnished to women who are receiving 
     medical assistance by virtue of the application of sections 
     1902(a)(10)(A)(ii)(XVIII) and 1902(aa).
       ``(C) Construction.--Nothing in this paragraph shall be 
     construed as preventing a State from exempting additional 
     classes of individuals from premiums under this section or 
     from exempting additional individuals or services from cost 
     sharing under subsection (a).
       ``(4) Determinations of family income.--In applying this 
     subsection, family income shall be determined in a manner 
     specified by the State for purposes of this subsection, 
     including the use of such disregards as the State may 
     provide. Family income shall be determined for such period 
     and at such periodicity as the State may provide under this 
     title.
       ``(5) Poverty line defined.--For purposes of this section, 
     the term `poverty line' has the meaning given such 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.
       ``(6) Construction.--Nothing in this section shall be 
     construed--
       ``(A) as preventing a State from further limiting the 
     premiums and cost sharing imposed under this section beyond 
     the limitations provided under this section;
       ``(B) as affecting the authority of the Secretary through 
     waiver to modify limitations on premiums and cost sharing 
     under this section; or
       ``(C) as affecting any such waiver of requirements in 
     effect under this title before the date of the enactment of 
     this section with regard to the imposition of premiums and 
     cost sharing.
       ``(d) Enforceability of Premiums and Other Cost Sharing.--
       ``(1) Premiums.--Notwithstanding section 1916(c)(3) and 
     section 1902(a)(10)(B), a State may, at its option, condition 
     the provision of medical assistance for an individual upon 
     prepayment of a premium authorized to be imposed under this 
     section, or may terminate eligibility for such medical 
     assistance on the basis of failure to pay such a premium but 
     shall not terminate eligibility of an individual for medical 
     assistance under this title on the basis of failure to pay 
     any such premium until such failure continues for a period of 
     not less than 60 days. A State may apply the previous 
     sentence for some or all groups of beneficiaries as specified 
     by the State and may waive payment of any such premium in any 
     case where the State determines that requiring such payment 
     would create an undue hardship.
       ``(2) Cost sharing.--Notwithstanding section 1916(e) or any 
     other provision of law, a State may permit a provider 
     participating under the State plan to require, as a condition 
     for the provision of care, items, or services to an 
     individual entitled to medical assistance under this title 
     for such care, items, or services, the payment of any cost 
     sharing authorized to be imposed under this section with 
     respect to such care, items, or services. Nothing in this 
     paragraph shall be construed as preventing a provider from 
     reducing or waiving the application of such cost sharing on a 
     case-by-case basis.''.
       (b) Indexing Nominal Cost Sharing and Conforming 
     Amendment.--Section 1916 of such Act (42 U.S.C. 1396o) is 
     amended--
       (1) in subsection (f), by inserting ``and section 1916A'' 
     after ``(b)(3)''; and
       (2) by adding at the end the following new subsection:
       ``(h) In applying this section and subsections (c) and (e) 
     of section 1916A, with respect to cost sharing that is 
     `nominal' in amount, the Secretary shall increase such 
     `nominal' amounts for each year (beginning with 2006) by the 
     annual percentage increase in the medical care component of 
     the consumer price index for all urban consumers (U.S. city 
     average) as rounded up in an appropriate manner.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to cost sharing imposed for items and services 
     furnished on or after March 31, 2006.

     SEC. 6042. SPECIAL RULES FOR COST SHARING FOR PRESCRIPTION 
                   DRUGS.

       (a) In General.--Section 1916A of the Social Security Act, 
     as inserted by section 6041(a), is amended by inserting after 
     subsection (b) the following new subsection:
       ``(c) Special Rules for Cost Sharing for Prescription 
     Drugs.--
       ``(1) In general.--In order to encourage beneficiaries to 
     use drugs (in this subsection referred to as `preferred 
     drugs') identified by the State as the least (or less) costly 
     effective prescription drugs within a class of drugs (as 
     defined by the State), with respect to one or more groups of 
     beneficiaries specified by the State, subject to paragraph 
     (2), the State may--

[[Page H12662]]

       ``(A) provide cost sharing (instead of the level of cost 
     sharing otherwise permitted under section 1916, but subject 
     to paragraphs (2) and (3)) with respect to drugs that are not 
     preferred drugs within a class; and
       ``(B) waive or reduce the cost sharing otherwise applicable 
     for preferred drugs within such class and shall not apply any 
     such cost sharing for such preferred drugs for individuals 
     for whom cost sharing may not otherwise be imposed under 
     subsection (b)(3)(B).
       ``(2) Limitations.--
       ``(A) By income group.--In no case may the cost sharing 
     under paragraph (1)(A) with respect to a non-preferred drug 
     exceed--
       ``(i) in the case of an individual whose family income does 
     not exceed 150 percent of the poverty line applicable to a 
     family of the size involved, the amount of nominal cost 
     sharing (as otherwise determined under section 1916); or
       ``(ii) in the case of an individual whose family income 
     exceeds 150 percent of the poverty line applicable to a 
     family of the size involved, 20 percent of the cost of the 
     drug.
       ``(B) Limitation to nominal for exempt populations.--In the 
     case of an individual who is otherwise not subject to cost 
     sharing due to the application of subsection (b)(3)(B), any 
     cost sharing under paragraph (1)(A) with respect to a non-
     preferred drug may not exceed a nominal amount (as otherwise 
     determined under section 1916).
       ``(C) Continued application of aggregate cap.--In addition 
     to the limitations imposed under subparagraphs (A) and (B), 
     any cost sharing under paragraph (1)(A) continues to be 
     subject to the aggregate cap on cost sharing applied under 
     paragraph (1) or (2) of subsection (b), as the case may be.
       ``(3) Waiver.--In carrying out paragraph (1), a State shall 
     provide for the application of cost sharing levels applicable 
     to a preferred drug in the case of a drug that is not a 
     preferred drug if the prescribing physician determines that 
     the preferred drug for treatment of the same condition either 
     would not be as effective for the individual or would have 
     adverse effects for the individual or both.
       ``(4) Exclusion authority.--Nothing in this subsection 
     shall be construed as preventing a State from excluding 
     specified drugs or classes of drugs from the application of 
     paragraph (1).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to cost sharing imposed for items and services 
     furnished on or after March 31, 2006.

     SEC. 6043. EMERGENCY ROOM COPAYMENTS FOR NON-EMERGENCY CARE.

       (a) In General.--Section 1916A of the Social Security Act, 
     as inserted by section 6041 and as amended by section 6042, 
     is further amended by adding at the end the following new 
     subsection:
       ``(e) State Option for Permitting Hospitals To Impose Cost 
     Sharing for Non-Emergency Care Furnished in an Emergency 
     Department.--
       ``(1) In general.--Notwithstanding section 1916 and section 
     1902(a)(1) or the previous provisions of this section, but 
     subject to the limitations of paragraph (2), a State may, by 
     amendment to its State plan under this title, permit a 
     hospital to impose cost sharing for non-emergency services 
     furnished to an individual (within one or more groups of 
     individuals specified by the State) in the hospital emergency 
     department under this subsection if the following conditions 
     are met:
       ``(A) Access to non-emergency room provider.--The 
     individual has actually available and accessible (as such 
     terms are applied by the Secretary under section 1916(b)(3)) 
     an alternate non-emergency services provider with respect to 
     such services.
       ``(B) Notice.--The hospital must inform the beneficiary 
     after receiving an appropriate medical screening examination 
     under section 1867 and after a determination has been made 
     that the individual does not have an emergency medical 
     condition, but before providing the non-emergency services, 
     of the following:
       ``(i) The hospital may require the payment of the State 
     specified cost sharing before the service can be provided.
       ``(ii) The name and location of an alternate non-emergency 
     services provider (described in subparagraph (A)) that is 
     actually available and accessible (as described in such 
     subparagraph).
       ``(iii) The fact that such alternate provider can provide 
     the services without the imposition of cost sharing described 
     in clause (i).
       ``(iv) The hospital provides a referral to coordinate 
     scheduling of this treatment.
     Nothing in this subsection shall be construed as preventing a 
     State from applying (or waiving) cost sharing otherwise 
     permissible under this section to services described in 
     clause (iii).
       ``(2) Limitations.--
       ``(A) For poorest beneficiaries.--In the case of an 
     individual described in subsection (b)(1), the cost sharing 
     imposed under this subsection may not exceed twice the amount 
     determined to be nominal under section 1916, subject to the 
     percent of income limitation otherwise applicable under 
     subsection (b)(1).
       ``(B) Application to exempt populations.--In the case of an 
     individual who is otherwise not subject to cost sharing under 
     subsection (b)(3), a State may impose cost sharing under 
     paragraph (1) for care in an amount that does not exceed a 
     nominal amount (as otherwise determined under section 1916) 
     so long as no cost sharing is imposed to receive such care 
     through an outpatient department or other alternative health 
     care provider in the geographic area of the hospital 
     emergency department involved.
       ``(C) Continued application of aggregate cap; relation to 
     other cost sharing.--In addition to the limitations imposed 
     under subparagraphs (A) and (B), any cost sharing under 
     paragraph (1) is subject to the aggregate cap on cost sharing 
     applied under paragraph (1) or (2) of subsection (b), as the 
     case may be. Cost sharing imposed for services under this 
     subsection shall be instead of any cost sharing that may be 
     imposed for such services under subsection (a).
       ``(3) Construction.--Nothing in this section shall be 
     construed--
       ``(A) to limit a hospital's obligations with respect to 
     screening and stabilizing treatment of an emergency medical 
     condition under section 1867; or
       ``(B) to modify any obligations under either State or 
     Federal standards relating to the application of a prudent-
     layperson standard with respect to payment or coverage of 
     emergency services by any managed care organization.
       ``(4) Standard regarding imposition of cost sharing.--No 
     hospital or physician shall be liable in any civil action or 
     proceeding for the imposition of cost-sharing under this 
     section, absent a finding by clear and convincing evidence of 
     gross negligence by the hospital or physician. The previous 
     sentence shall not affect any liability under section 1867 or 
     otherwise applicable under State law based upon the provision 
     of (or failure to provide) care.
       ``(5) Definitions.--For purposes of this subsection:
       ``(A) Non-emergency services.--The term `non-emergency 
     services' means any care or services furnished in an 
     emergency department of a hospital that the physician 
     determines do not constitute an appropriate medical screening 
     examination or stabilizing examination and treatment required 
     to be provided by the hospital under section 1867.
       ``(B) Alternate non-emergency services provider.--The term 
     `alternative non-emergency services provider' means, with 
     respect to non-emergency services for the diagnosis or 
     treatment of a condition, a health care provider, such as a 
     physician's office, health care clinic, community health 
     center, hospital outpatient department, or similar health 
     care provider, that can provide clinically appropriate 
     services for the diagnosis or treatment of a condition 
     contemporaneously with the provision of the non-emergency 
     services that would be provided in an emergency department of 
     a hospital for the diagnosis or treatment of a condition, and 
     that is participating in the program under this title.''.
       (b) Grant Funds for Establishment of Alternate Non-
     Emergency Services Providers.--Section 1903 of the Social 
     Security Act (42 U.S.C. 1396b), as amended by section 
     6037(a)(2), is amended by adding at the end the following new 
     subsection:
       ``(y) Payments for Establishment of Alternate Non-Emergency 
     Services Providers.--
       ``(1) Payments.--In addition to the payments otherwise 
     provided under subsection (a), subject to paragraph (2), the 
     Secretary shall provide for payments to States under such 
     subsection for the establishment of alternate non-emergency 
     service providers (as defined in section 1916A(e)(5)(B)), or 
     networks of such providers.
       ``(2) Limitation.--The total amount of payments under this 
     subsection shall not exceed $50,000,000 during the 4-year 
     period beginning with 2006. This subsection constitutes 
     budget authority in advance of appropriations Acts and 
     represents the obligation of the Secretary to provide for the 
     payment of amounts provided under this subsection.
       ``(3) Preference.--In providing for payments to States 
     under this subsection, the Secretary shall provide preference 
     to States that establish, or provide for, alternate non-
     emergency services providers or networks of such providers 
     that--
       ``(A) serve rural or underserved areas where beneficiaries 
     under this title may not have regular access to providers of 
     primary care services; or
       ``(B) are in partnership with local community hospitals.
       ``(4) Form and manner of payment.--Payment to a State under 
     this subsection shall be made only upon the filing of such 
     application in such form and in such manner as the Secretary 
     shall specify. Payment to a State under this subsection shall 
     be made in the same manner as other payments under section 
     1903(a).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to non-emergency services furnished on or after 
     January 1, 2007.

     SEC. 6044. USE OF BENCHMARK BENEFIT PACKAGES.

       (a) In General.--Title XIX of the Social Security Act, as 
     amended by section 6035, is amended by redesignating section 
     1937 as section 1938 and by inserting after section 1936 the 
     following new section:


                ``State flexibility in benefit packages

       ``Sec. 1937. (a) State Option of Providing Benchmark 
     Benefits.--
       ``(1) Authority.--
       ``(A) In general.--Notwithstanding any other provision of 
     this title, a State, at its option as a State plan amendment, 
     may provide for medical assistance under this title to 
     individuals within one or more groups of individuals 
     specified by the State through enrollment in coverage that 
     provides--
       ``(i) benchmark coverage described in subsection (b)(1) or 
     benchmark equivalent coverage described in subsection (b)(2); 
     and
       ``(ii) for any child under 19 years of age who is covered 
     under the State plan under section 1902(a)(10)(A), wrap-
     around benefits to the benchmark coverage or benchmark 
     equivalent coverage consisting of early and periodic 
     screening, diagnostic, and treatment services defined in 
     section 1905(r).
       ``(B) Limitation.--The State may only exercise the option 
     under subparagraph (A) for an individual eligible under an 
     eligibility category that had been established under the 
     State plan on or before the date of the enactment of this 
     section.
       ``(C) Option of wrap-around benefits.--In the case of 
     coverage described in subparagraph

[[Page H12663]]

     (A), a State, at its option, may provide such wrap-around or 
     additional benefits as the State may specify.
       ``(D) Treatment as medical assistance.--Payment of premiums 
     for such coverage under this subsection shall be treated as 
     payment of other insurance premiums described in the third 
     sentence of section 1905(a).
       ``(2) Application.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     a State may require that a full-benefit eligible individual 
     (as defined in subparagraph (C)) within a group obtain 
     benefits under this title through enrollment in coverage 
     described in paragraph (1)(A). A State may apply the previous 
     sentence to individuals within 1 or more groups of such 
     individuals.
       ``(B) Limitation on application.--A State may not require 
     under subparagraph (A) an individual to obtain benefits 
     through enrollment described in paragraph (1)(A) if the 
     individual is within one of the following categories of 
     individuals:
       ``(i) Mandatory pregnant women.--The individual is a 
     pregnant woman who is required to be covered under the State 
     plan under section 1902(a)(10)(A)(i).
       ``(ii) Blind or disabled individuals.--The individual 
     qualifies for medical assistance under the State plan on the 
     basis of being blind or disabled (or being treated as being 
     blind or disabled) without regard to whether the individual 
     is eligible for supplemental security income benefits under 
     title XVI on the basis of being blind or disabled and 
     including an individual who is eligible for medical 
     assistance on the basis of section 1902(e)(3).
       ``(iii) Dual eligibles.--The individual is entitled to 
     benefits under any part of title XVIII.
       ``(iv) Terminally ill hospice patients.--The individual is 
     terminally ill and is receiving benefits for hospice care 
     under this title.
       ``(v) Eligible on basis of institutionalization.--The 
     individual is an inpatient in a hospital, nursing facility, 
     intermediate care facility for the mentally retarded, or 
     other medical institution, and is required, as a condition of 
     receiving services in such institution under the State plan, 
     to spend for costs of medical care all but a minimal amount 
     of the individual's income required for personal needs.
       ``(vi) Medically frail and special medical needs 
     individuals.--The individual is medically frail or otherwise 
     an individual with special medical needs (as identified in 
     accordance with regulations of the Secretary).
       ``(vii) Beneficiaries qualifying for long-term care 
     services.--The individual qualifies based on medical 
     condition for medical assistance for long-term care services 
     described in section 1917(c)(1)(C).
       ``(viii) Children in foster care receiving child welfare 
     services and children receiving foster care or adoption 
     assistance.--The individual is an individual with respect to 
     whom aid or assistance is made available under part B of 
     title IV to children in foster care and individuals with 
     respect to whom adoption or foster care assistance is made 
     available under part E of such title, without regard to age.
       ``(ix) TANF and section 1931 parents.--The individual 
     qualifies for medical assistance on the basis of eligibility 
     to receive assistance under a State plan funded under part A 
     of title IV (as in effect on or after the welfare reform 
     effective date defined in section 1931(i)).
       ``(x) Women in the breast or cervical cancer program.--The 
     individual is a woman who is receiving medical assistance by 
     virtue of the application of sections 
     1902(a)(10)(A)(ii)(XVIII) and 1902(aa).
       ``(xii) Limited services beneficiaries.--The individual--

       ``(I) qualifies for medical assistance on the basis of 
     section 1902(a)(10)(A)(ii)(XII); or
       ``(II) is not a qualified alien (as defined in section 431 
     of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996) and receives care and services 
     necessary for the treatment of an emergency medical condition 
     in accordance with section 1903(v).

       ``(C) Full-benefit eligible individuals.--
       ``(i) In general.--For purposes of this paragraph, subject 
     to clause (ii), the term `full-benefit eligible individual' 
     means for a State for a month an individual who is determined 
     eligible by the State for medical assistance for all services 
     defined in section 1905(a) which are covered under the State 
     plan under this title for such month under section 
     1902(a)(10)(A) or under any other category of eligibility for 
     medical assistance for all such services under this title, as 
     determined by the Secretary.
       ``(ii) Exclusion of medically needy and spend-down 
     populations.--Such term shall not include an individual 
     determined to be eligible by the State for medical assistance 
     under section 1902(a)(10)(C) or by reason of section 1902(f) 
     or otherwise eligible based on a reduction of income based on 
     costs incurred for medical or other remedial care.
       ``(b) Benchmark Benefit Packages.--
       ``(1) In general.--For purposes of subsection (a)(1), each 
     of the following coverage shall be considered to be benchmark 
     coverage:
       ``(A) FEHBP-equivalent health insurance coverage.--The 
     standard Blue Cross/Blue Shield preferred provider option 
     service benefit plan, described in and offered under section 
     8903(1) of title 5, United States Code.
       ``(B) State employee coverage.--A health benefits coverage 
     plan that is offered and generally available to State 
     employees in the State involved.
       ``(C) Coverage offered through hmo.--The health insurance 
     coverage plan that--
       ``(i) is offered by a health maintenance organization (as 
     defined in section 2791(b)(3) of the Public Health Service 
     Act), and
       ``(ii) has the largest insured commercial, non-medicaid 
     enrollment of covered lives of such coverage plans offered by 
     such a health maintenance organization in the State involved.
       ``(D) Secretary-approved coverage.--Any other health 
     benefits coverage that the Secretary determines, upon 
     application by a State, provides appropriate coverage for the 
     population proposed to be provided such coverage.
       ``(2) Benchmark-equivalent coverage.--For purposes of 
     subsection (a)(1), coverage that meets the following 
     requirement shall be considered to be benchmark-equivalent 
     coverage:
       ``(A) Inclusion of basic services.--The coverage includes 
     benefits for items and services within each of the following 
     categories of basic services:
       ``(i) Inpatient and outpatient hospital services.
       ``(ii) Physicians' surgical and medical services.
       ``(iii) Laboratory and x-ray services.
       ``(iv) Well-baby and well-child care, including age-
     appropriate immunizations.
       ``(v) Other appropriate preventive services, as designated 
     by the Secretary.
       ``(B) Aggregate actuarial value equivalent to benchmark 
     package.--The coverage has an aggregate actuarial value that 
     is at least actuarially equivalent to one of the benchmark 
     benefit packages described in paragraph (1).
       ``(C) Substantial actuarial value for additional services 
     included in benchmark package.--With respect to each of the 
     following categories of additional services for which 
     coverage is provided under the benchmark benefit package used 
     under subparagraph (B), the coverage has an actuarial value 
     that is equal to at least 75 percent of the actuarial value 
     of the coverage of that category of services in such package:
       ``(i) Coverage of prescription drugs.
       ``(ii) Mental health services.
       ``(iii) Vision services.
       ``(iv) Hearing services.
       ``(3) Determination of actuarial value.--The actuarial 
     value of coverage of benchmark benefit packages shall be set 
     forth in an actuarial opinion in an actuarial report that has 
     been prepared--
       ``(A) by an individual who is a member of the American 
     Academy of Actuaries;
       ``(B) using generally accepted actuarial principles and 
     methodologies;
       ``(C) using a standardized set of utilization and price 
     factors;
       ``(D) using a standardized population that is 
     representative of the population involved;
       ``(E) applying the same principles and factors in comparing 
     the value of different coverage (or categories of services);
       ``(F) without taking into account any differences in 
     coverage based on the method of delivery or means of cost 
     control or utilization used; and
       ``(G) taking into account the ability of a State to reduce 
     benefits by taking into account the increase in actuarial 
     value of benefits coverage offered under this title that 
     results from the limitations on cost sharing under such 
     coverage.

     The actuary preparing the opinion shall select and specify in 
     the memorandum the standardized set and population to be used 
     under subparagraphs (C) and (D).
       ``(4) Coverage of rural health clinic and fqhc services.--
     Notwithstanding the previous provisions of this section, a 
     State may not provide for medical assistance through 
     enrollment of an individual with benchmark coverage or 
     benchmark equivalent coverage under this section unless--
       ``(A) the individual has access, through such coverage or 
     otherwise, to services described in subparagraphs (B) and (C) 
     of section 1905(a)(2); and
       ``(B) payment for such services is made in accordance with 
     the requirements of section 1902(bb).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     takes effect on March 31, 2006.

               CHAPTER 5--STATE FINANCING UNDER MEDICAID

     SEC. 6051. MANAGED CARE ORGANIZATION PROVIDER TAX REFORM.

       (a) In General.--Section 1903(w)(7)(A)(viii) of the Social 
     Security Act (42 U.S.C. 1396b(w)(7)(A)(viii)) is amended to 
     read as follows:
       ``(viii) Services of managed care organizations (including 
     health maintenance organizations, preferred provider 
     organizations, and such other similar organizations as the 
     Secretary may specify by regulation).''.
       (b) Effective Date.--
       (1) In general.--Subject to paragraph (2), the amendment 
     made by subsection (a) shall be effective as of the date of 
     the enactment of this Act.
       (2) Delay in effective date.--
       (A) In general.--Subject to subparagraph (B), in the case 
     of a State specified in subparagraph (B), the amendment made 
     by subsection (a) shall be effective as of October 1, 2009.
       (B) Specified states.--For purposes of subparagraph (A), 
     the States specified in this subparagraph are States that 
     have enacted a law providing for a tax on the services of a 
     medicaid managed care organization with a contract under 
     section 1903(m) of the Social Security Act as of December 8, 
     2005.
       (c) Clarification Regarding Non-Regulation of Transfers.--
       (1) In general.--Nothing in section 1903(w) of the Social 
     Security Act (42 U.S.C. 1396b(w)) shall be construed by the 
     Secretary of Health and Human Services as prohibiting a 
     State's use of funds as the non-Federal share of expenditures 
     under title XIX of such Act where such funds are transferred 
     from or certified by a publicly-owned regional medical center 
     located in another State and described in paragraph (2), so 
     long as the Secretary determines that such use of funds is 
     proper and in the interest of the program under title XIX.

[[Page H12664]]

       (2) Center described.--A center described in this paragraph 
     is a publicly-owned regional medical center that--
       (A) provides level 1 trauma and burn care services;
       (B) provides level 3 neonatal care services;
       (C) is obligated to serve all patients, regardless of State 
     of origin;
       (D) is located within a Standard Metropolitan Statistical 
     Area (SMSA) that includes at least 3 States, including the 
     States described in paragraph (1);
       (E) serves as a tertiary care provider for patients 
     residing within a 125 mile radius; and
       (F) meets the criteria for a disproportionate share 
     hospital under section 1923 of such Act in at least one State 
     other than the one in which the center is located.
       (3) Effective period.--This subsection shall apply through 
     December 31, 2006.

     SEC. 6052. REFORMS OF CASE MANAGEMENT AND TARGETED CASE 
                   MANAGEMENT.

       (a) In General.--Section 1915(g) of the Social Security Act 
     (42 U.S.C. 1396n(g)(2)) is amended by striking paragraph (2) 
     and inserting the following:
       ``(2) For purposes of this subsection:
       ``(A)(i) The term `case management services' means services 
     which will assist individuals eligible under the plan in 
     gaining access to needed medical, social, educational, and 
     other services.
       ``(ii) Such term includes the following:
       ``(I) Assessment of an eligible individual to determine 
     service needs, including activities that focus on needs 
     identification, to determine the need for any medical, 
     educational, social, or other services. Such assessment 
     activities include the following:
       ``(aa) Taking client history.
       ``(bb) Identifying the needs of the individual, and 
     completing related documentation.
       ``(cc) Gathering information from other sources such as 
     family members, medical providers, social workers, and 
     educators, if necessary, to form a complete assessment of the 
     eligible individual.
       ``(II) Development of a specific care plan based on the 
     information collected through an assessment, that specifies 
     the goals and actions to address the medical, social, 
     educational, and other services needed by the eligible 
     individual, including activities such as ensuring the active 
     participation of the eligible individual and working with the 
     individual (or the individual's authorized health care 
     decision maker) and others to develop such goals and identify 
     a course of action to respond to the assessed needs of the 
     eligible individual.
       ``(III) Referral and related activities to help an 
     individual obtain needed services, including activities that 
     help link eligible individuals with medical, social, 
     educational providers or other programs and services that are 
     capable of providing needed services, such as making 
     referrals to providers for needed services and scheduling 
     appointments for the individual.
       ``(IV) Monitoring and followup activities, including 
     activities and contacts that are necessary to ensure the care 
     plan is effectively implemented and adequately addressing the 
     needs of the eligible individual, and which may be with the 
     individual, family members, providers, or other entities and 
     conducted as frequently as necessary to help determine such 
     matters as--
       ``(aa) whether services are being furnished in accordance 
     with an individual's care plan;
       ``(bb) whether the services in the care plan are adequate; 
     and
       ``(cc) whether there are changes in the needs or status of 
     the eligible individual, and if so, making necessary 
     adjustments in the care plan and service arrangements with 
     providers.
       ``(iii) Such term does not include the direct delivery of 
     an underlying medical, educational, social, or other service 
     to which an eligible individual has been referred, including, 
     with respect to the direct delivery of foster care services, 
     services such as (but not limited to) the following:
       ``(I) Research gathering and completion of documentation 
     required by the foster care program.
       ``(II) Assessing adoption placements.
       ``(III) Recruiting or interviewing potential foster care 
     parents.
       ``(IV) Serving legal papers.
       ``(V) Home investigations.
       ``(VI) Providing transportation.
       ``(VII) Administering foster care subsidies.
       ``(VIII) Making placement arrangements.
       ``(B) The term `targeted case management services' are case 
     management services that are furnished without regard to the 
     requirements of section 1902(a)(1) and section 1902(a)(10)(B) 
     to specific classes of individuals or to individuals who 
     reside in specified areas.
       ``(3) With respect to contacts with individuals who are not 
     eligible for medical assistance under the State plan or, in 
     the case of targeted case management services, individuals 
     who are eligible for such assistance but are not part of the 
     target population specified in the State plan, such 
     contacts--
       ``(A) are considered an allowable case management activity, 
     when the purpose of the contact is directly related to the 
     management of the eligible individual's care; and
       ``(B) are not considered an allowable case management 
     activity if such contacts relate directly to the 
     identification and management of the noneligible or 
     nontargeted individual's needs and care.
       ``(4)(A) In accordance with section 1902(a)(25), Federal 
     financial participation only is available under this title 
     for case management services or targeted case management 
     services if there are no other third parties liable to pay 
     for such services, including as reimbursement under a 
     medical, social, educational, or other program.
       ``(B) A State shall allocate the costs of any part of such 
     services which are reimbursable under another federally 
     funded program in accordance with OMB Circular A-87 (or any 
     related or successor guidance or regulations regarding 
     allocation of costs among federally funded programs) under an 
     approved cost allocation program.
       ``(5) Nothing in this subsection shall be construed as 
     affecting the application of rules with respect to third 
     party liability under programs, or activities carried out 
     under title XXVI of the Public Health Service Act or by the 
     Indian Health Service.''.
       (b) Regulations.--The Secretary shall promulgate 
     regulations to carry out the amendment made by subsection (a) 
     which may be effective and final immediately on an interim 
     basis as of the date of publication of the interim final 
     regulation. If the Secretary provides for an interim final 
     regulation, the Secretary shall provide for a period of 
     public comments on such regulation after the date of 
     publication. The Secretary may change or revise such 
     regulation after completion of the period of public comment.
       (c) Effective Date.--The amendment made by subsection (a) 
     shall take effect on January 1, 2006.

     SEC. 6053. ADDITIONAL FMAP ADJUSTMENTS.

       (a) Hold Harmless for Certain Decrease.--Notwithstanding 
     the first sentence of section 1905(b) of the Social Security 
     Act (42 U.S.C. 1396d(b)), if, for purposes of titles XIX and 
     XXI of the Social Security Act (42 U.S.C. 1396 et seq., 
     1397aa et seq.), the Federal medical assistance percentage 
     determined for the State specified in section 4725(a) of 
     Public Law 105-33 for fiscal year 2006 or fiscal year 2007 is 
     less than the Federal medical assistance percentage 
     determined for such State for fiscal year 2005, the Federal 
     medical assistance percentage determined for such State for 
     fiscal year 2005 shall be substituted for the Federal medical 
     assistance percentage otherwise determined for such State for 
     fiscal year 2006 or fiscal year 2007, as the case may be.
       (b) Hold Harmless for Katrina Impact.--Notwithstanding any 
     other provision of law, for purposes of titles XIX and XXI of 
     the Social Security Act, the Secretary of Health and Human 
     Services, in computing the Federal medical assistance 
     percentage under section 1905(b) of such Act (42 U.S.C. 
     1396d(b)) for any year after 2006 for a State that the 
     Secretary determines has a significant number of evacuees who 
     were evacuated to, and live in, the State as a result of 
     Hurricane Katrina as of October 1, 2005, shall disregard such 
     evacuees (and income attributable to such evacuees) from such 
     computation.

     SEC. 6054. DSH ALLOTMENT FOR THE DISTRICT OF COLUMBIA.

       (a) In General.--For purposes of determining the DSH 
     allotment for the District of Columbia under section 1923 of 
     the Social Security Act (42 U.S.C. 1396r-4) for fiscal year 
     2006 and each subsequent fiscal year, the table in subsection 
     (f)(2) of such section is amended under each of the columns 
     for FY 00, FY 01, and FY 02, in the entry for the District of 
     Columbia by striking ``32'' and inserting ``49''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect as if enacted on October 1, 2005, and shall 
     only apply to disproportionate share hospital adjustment 
     expenditures applicable to fiscal year 2006 and subsequent 
     fiscal years made on or after that date.

     SEC. 6055. INCREASE IN MEDICAID PAYMENTS TO INSULAR AREAS.

       Section 1108(g) of the Social Security Act (42 U.S.C. 
     1308(g)) is amended--
       (1) in paragraph (2), by inserting ``and subject to 
     paragraph (3)'' after ``subsection (f)''; and
       (2) by adding at the end the following new paragraph:
       ``(3) Fiscal years 2006 and 2007 for certain insular 
     areas.--The amounts otherwise determined under this 
     subsection for Puerto Rico, the Virgin Islands, Guam, the 
     Northern Mariana Islands, and American Samoa for fiscal year 
     2006 and fiscal year 2007 shall be increased by the following 
     amounts:
       ``(A) For Puerto Rico, $12,000,000 for fiscal year 2006 and 
     $12,000,000 for fiscal year 2007.
       ``(B) For the Virgin Islands, $2,500,000 for fiscal year 
     2006 and $5,000,000 for fiscal year 2007.
       ``(C) For Guam, $2,500,000 for fiscal year 2006 and 
     $5,000,000 for fiscal year 2007.
       ``(D) For the Northern Mariana Islands, $1,000,000 for 
     fiscal year 2006 and $2,000,000 for fiscal year 2007.
       ``(E) For American Samoa, $2,000,000 for fiscal year 2006 
     and $4,000,000 for fiscal year 2007.

     Such amounts shall not be taken into account in applying 
     paragraph (2) for fiscal year 2007 but shall be taken into 
     account in applying such paragraph for fiscal year 2008 and 
     subsequent fiscal years.''.

                      CHAPTER 6--OTHER PROVISIONS

                  Subchapter A--Family Opportunity Act

     SEC. 6061. SHORT TITLE OF SUBCHAPTER.

       This subchapter may be cited as the ``Family Opportunity 
     Act of 2005'' or the ``Dylan Lee James Act''.

     SEC. 6062. OPPORTUNITY FOR FAMILIES OF DISABLED CHILDREN TO 
                   PURCHASE MEDICAID COVERAGE FOR SUCH CHILDREN.

       (a) State Option To Allow Families of Disabled Children To 
     Purchase Medicaid Coverage for Such Children.--
       (1) In general.--Section 1902 of the Social Security Act 
     (42 U.S.C. 1396a) is amended--
       (A) in subsection (a)(10)(A)(ii)--
       (i) by striking ``or'' at the end of subclause (XVII);
       (ii) by adding ``or'' at the end of subclause (XVIII); and
       (iii) by adding at the end the following new subclause:

       ``(XIX) who are disabled children described in subsection 
     (cc)(1);''; and

       (B) by adding at the end the following new subsection:

[[Page H12665]]

       ``(cc)(1) Individuals described in this paragraph are 
     individuals--
       ``(A) who are children who have not attained 19 years of 
     age and are born--
       ``(i) on or after January 1, 2001 (or, at the option of a 
     State, on or after an earlier date), in the case of the 
     second, third, and fourth quarters of fiscal year 2007;
       ``(ii) on or after October 1, 1995 (or, at the option of a 
     State, on or after an earlier date), in the case of each 
     quarter of fiscal year 2008; and
       ``(iii) after October 1, 1989, in the case of each quarter 
     of fiscal year 2009 and each quarter of any fiscal year 
     thereafter;
       ``(B) who would be considered disabled under section 
     1614(a)(3)(C) (as determined under title XVI for children but 
     without regard to any income or asset eligibility 
     requirements that apply under such title with respect to 
     children); and
       ``(C) whose family income does not exceed such income level 
     as the State establishes and does not exceed--
       ``(i) 300 percent of the poverty line (as defined in 
     section 2110(c)(5)) applicable to a family of the size 
     involved; or
       ``(ii) such higher percent of such poverty line as a State 
     may establish, except that--
       ``(I) any medical assistance provided to an individual 
     whose family income exceeds 300 percent of such poverty line 
     may only be provided with State funds; and
       ``(II) no Federal financial participation shall be provided 
     under section 1903(a) for any medical assistance provided to 
     such an individual.''.
       (2) Interaction with employer-sponsored family coverage.--
     Section 1902(cc) of such Act (42 U.S.C. 1396a(cc)), as added 
     by paragraph (1)(B), is amended by adding at the end the 
     following new paragraph:
       ``(2)(A) If an employer of a parent of an individual 
     described in paragraph (1) offers family coverage under a 
     group health plan (as defined in section 2791(a) of the 
     Public Health Service Act), the State shall--
       ``(i) notwithstanding section 1906, require such parent to 
     apply for, enroll in, and pay premiums for such coverage as a 
     condition of such parent's child being or remaining eligible 
     for medical assistance under subsection (a)(10)(A)(ii)(XIX) 
     if the parent is determined eligible for such coverage and 
     the employer contributes at least 50 percent of the total 
     cost of annual premiums for such coverage; and
       ``(ii) if such coverage is obtained--
       ``(I) subject to paragraph (2) of section 1916(h), reduce 
     the premium imposed by the State under that section in an 
     amount that reasonably reflects the premium contribution made 
     by the parent for private coverage on behalf of a child with 
     a disability; and
       ``(II) treat such coverage as a third party liability under 
     subsection (a)(25).
       ``(B) In the case of a parent to which subparagraph (A) 
     applies, a State, notwithstanding section 1906 but subject to 
     paragraph (1)(C)(ii), may provide for payment of any portion 
     of the annual premium for such family coverage that the 
     parent is required to pay. Any payments made by the State 
     under this subparagraph shall be considered, for purposes of 
     section 1903(a), to be payments for medical assistance.''.
       (b) State Option To Impose Income-Related Premiums.--
     Section 1916 of such Act (42 U.S.C. 1396o) is amended--
       (1) in subsection (a), by striking ``subsection (g)'' and 
     inserting ``subsections (g) and (i)''; and
       (2) by adding at the end, as amended by section 6041(b)(2), 
     the following new subsection:
       ``(i)(1) With respect to disabled children provided medical 
     assistance under section 1902(a)(10)(A)(ii)(XIX), subject to 
     paragraph (2), a State may (in a uniform manner for such 
     children) require the families of such children to pay 
     monthly premiums set on a sliding scale based on family 
     income.
       ``(2) A premium requirement imposed under paragraph (1) may 
     only apply to the extent that--
       ``(A) in the case of a disabled child described in that 
     paragraph whose family income--
       ``(i) does not exceed 200 percent of the poverty line, the 
     aggregate amount of such premium and any premium that the 
     parent is required to pay for family coverage under section 
     1902(cc)(2)(A)(i) and other cost-sharing charges do not 
     exceed 5 percent of the family's income; and
       ``(ii) exceeds 200, but does not exceed 300, percent of the 
     poverty line, the aggregate amount of such premium and any 
     premium that the parent is required to pay for family 
     coverage under section 1902(cc)(2)(A)(i) and other cost-
     sharing charges do not exceed 7.5 percent of the family's 
     income; and
       ``(B) the requirement is imposed consistent with section 
     1902(cc)(2)(A)(ii)(I).
       ``(3) A State shall not require prepayment of a premium 
     imposed pursuant to paragraph (1) and shall not terminate 
     eligibility of a child under section 1902(a)(10)(A)(ii)(XIX) 
     for medical assistance under this title on the basis of 
     failure to pay any such premium until such failure continues 
     for a period of at least 60 days from the date on which the 
     premium became past due. The State may waive payment of any 
     such premium in any case where the State determines that 
     requiring such payment would create an undue hardship.''.
       (c) Conforming Amendments.--(1) Section 1903(f)(4) of such 
     Act (42 U.S.C. 1396b(f)(4)) is amended in the matter 
     preceding subparagraph (A), by inserting 
     ``1902(a)(10)(A)(ii)(XIX),'' after 
     ``1902(a)(10)(A)(ii)(XVIII),''.
       (2) Section 1905(u)(2)(B) of such Act (42 U.S.C. 
     1396d(u)(2)(B)) is amended by adding at the end the following 
     sentence: ``Such term excludes any child eligible for medical 
     assistance only by reason of section 
     1902(a)(10)(A)(ii)(XIX).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to medical assistance for items and services 
     furnished on or after January 1, 2007.

     SEC. 6063. DEMONSTRATION PROJECTS REGARDING HOME AND 
                   COMMUNITY-BASED ALTERNATIVES TO PSYCHIATRIC 
                   RESIDENTIAL TREATMENT FACILITIES FOR CHILDREN.

       (a) In General.--The Secretary is authorized to conduct, 
     during each of fiscal years 2007 through 2011, demonstration 
     projects (each in the section referred to as a 
     ``demonstration project'') in accordance with this section 
     under which up to 10 States (as defined for purposes of title 
     XIX of the Social Security Act) are awarded grants, on a 
     competitive basis, to test the effectiveness in improving or 
     maintaining a child's functional level and cost-effectiveness 
     of providing coverage of home and community-based 
     alternatives to psychiatric residential treatment for 
     children enrolled in the Medicaid program under title XIX of 
     such Act.
       (b) Application of Terms and Conditions.--
       (1) In general.--Subject to the provisions of this section, 
     for the purposes of the demonstration projects, and only with 
     respect to children enrolled under such demonstration 
     projects, a psychiatric residential treatment facility (as 
     defined in section 483.352 of title 42 of the Code of Federal 
     Regulations) shall be deemed to be a facility specified in 
     section 1915(c) of the Social Security Act (42 U.S.C. 
     1396n(c)), and to be included in each reference in such 
     section 1915(c) to hospitals, nursing facilities, and 
     intermediate care facilities for the mentally retarded.
       (2) State option to assure continuity of medicaid 
     coverage.--Upon the termination of a demonstration project 
     under this section, the State that conducted the project may 
     elect, only with respect to a child who is enrolled in such 
     project on the termination date, to continue to provide 
     medical assistance for coverage of home and community-based 
     alternatives to psychiatric residential treatment for the 
     child in accordance with section 1915(c) of the Social 
     Security Act (42 U.S.C. 1396n(c)), as modified through the 
     application of paragraph (1). Expenditures incurred for 
     providing such medical assistance shall be treated as a home 
     and community-based waiver program under section 1915(c) of 
     the Social Security Act (42 U.S.C. 1396n(c)) for purposes of 
     payment under section 1903 of such Act (42 U.S.C. 1396b).
       (c) Terms of Demonstration Projects.--
       (1) In general.--Except as otherwise provided in this 
     section, a demonstration project shall be subject to the same 
     terms and conditions as apply to a waiver under section 
     1915(c) of the Social Security Act (42 U.S.C. 1396n(c)), 
     including the waiver of certain requirements under the first 
     sentence of paragraph (3) of such section but not applying 
     the second sentence of such paragraph.
       (2) Budget neutrality.--In conducting the demonstration 
     projects under this section, the Secretary shall ensure that 
     the aggregate payments made by the Secretary under title XIX 
     of the Social Security Act (42 U.S.C. 1396 et seq.) do not 
     exceed the amount which the Secretary estimates would have 
     been paid under that title if the demonstration projects 
     under this section had not been implemented.
       (3) Evaluation.--The application for a demonstration 
     project shall include an assurance to provide for such 
     interim and final evaluations of the demonstration project by 
     independent third parties, and for such interim and final 
     reports to the Secretary, as the Secretary may require.
       (d) Payments to States; Limitations to Scope and Funding.--
       (1) In general.--Subject to paragraph (2), a demonstration 
     project approved by the Secretary under this section shall be 
     treated as a home and community-based waiver program under 
     section 1915(c) of the Social Security Act (42 U.S.C. 
     1396n(c)) for purposes of payment under section 1903 of such 
     Act (42 U.S.C. 1396b).
       (2) Limitation.--In no case may the amount of payments made 
     by the Secretary under this section for State demonstration 
     projects for a fiscal year exceed the amount available under 
     subsection (f)(2)(A) for such fiscal year.
       (e) Secretary's Evaluation and Report.--The Secretary shall 
     conduct an interim and final evaluation of State 
     demonstration projects under this section and shall report to 
     the President and Congress the conclusions of such 
     evaluations within 12 months of completing such evaluations.
       (f) Funding.--
       (1) In general.--For the purpose of carrying out this 
     section, there are appropriated, from amounts in the Treasury 
     not otherwise appropriated, for fiscal years 2007 through 
     2011, a total of $218,000,000, of which--
       (A) the amount specified in paragraph (2) shall be 
     available for each of fiscal years 2007 through 2011; and
       (B) a total of $1,000,000 shall be available to the 
     Secretary for the evaluations and report under subsection 
     (e).
       (2) Fiscal year limit.--
       (A) In general.--For purposes of paragraph (1), the amount 
     specified in this paragraph for a fiscal year is the amount 
     specified in subparagraph (B) for the fiscal year plus the 
     difference, if any, between the total amount available under 
     this paragraph for prior fiscal years and the total amount 
     previously expended under paragraph (1)(A) for such prior 
     fiscal years.
       (B) Fiscal year amounts.--The amount specified in this 
     subparagraph for--
       (i) fiscal year 2007 is $21,000,000;
       (ii) fiscal year 2008 is $37,000,000;
       (iii) fiscal year 2009 is $49,000,000;
       (iv) fiscal year 2010 is $53,000,000; and
       (v) fiscal year 2011 is $57,000,000.

     SEC. 6064. DEVELOPMENT AND SUPPORT OF FAMILY-TO-FAMILY HEALTH 
                   INFORMATION CENTERS.

       Section 501 of the Social Security Act (42 U.S.C. 701) is 
     amended by adding at the end the following new subsection:
       ``(c)(1)(A) For the purpose of enabling the Secretary 
     (through grants, contracts, or otherwise) to provide for 
     special projects of regional

[[Page H12666]]

     and national significance for the development and support of 
     family-to-family health information centers described in 
     paragraph (2), there is appropriated to the Secretary, out of 
     any money in the Treasury not otherwise appropriated--
       ``(i) $3,000,000 for fiscal year 2007;
       ``(ii) $4,000,000 for fiscal year 2008; and
       ``(iii) $5,000,000 for fiscal year 2009.
       ``(B) Funds appropriated or authorized to be appropriated 
     under subparagraph (A) shall--
       ``(i) be in addition to amounts appropriated under 
     subsection (a) and retained under section 502(a)(1) for the 
     purpose of carrying out activities described in subsection 
     (a)(2); and
       ``(ii) remain available until expended.
       ``(2) The family-to-family health information centers 
     described in this paragraph are centers that--
       ``(A) assist families of children with disabilities or 
     special health care needs to make informed choices about 
     health care in order to promote good treatment decisions, 
     cost-effectiveness, and improved health outcomes for such 
     children;
       ``(B) provide information regarding the health care needs 
     of, and resources available for, such children;
       ``(C) identify successful health delivery models for such 
     children;
       ``(D) develop with representatives of health care 
     providers, managed care organizations, health care 
     purchasers, and appropriate State agencies, a model for 
     collaboration between families of such children and health 
     professionals;
       ``(E) provide training and guidance regarding caring for 
     such children;
       ``(F) conduct outreach activities to the families of such 
     children, health professionals, schools, and other 
     appropriate entities and individuals; and
       ``(G) are staffed--
       ``(i) by such families who have expertise in Federal and 
     State public and private health care systems; and
       ``(ii) by health professionals.
       ``(3) The Secretary shall develop family-to-family health 
     information centers described in paragraph (2) in accordance 
     with the following:
       ``(A) With respect to fiscal year 2007, such centers shall 
     be developed in not less than 25 States.
       ``(B) With respect to fiscal year 2008, such centers shall 
     be developed in not less than 40 States.
       ``(C) With respect to fiscal year 2009 and each fiscal year 
     thereafter, such centers shall be developed in all States.
       ``(4) The provisions of this title that are applicable to 
     the funds made available to the Secretary under section 
     502(a)(1) apply in the same manner to funds made available to 
     the Secretary under paragraph (1)(A).
       ``(5) For purposes of this subsection, the term `State' 
     means each of the 50 States and the District of Columbia.''.

     SEC. 6065. RESTORATION OF MEDICAID ELIGIBILITY FOR CERTAIN 
                   SSI BENEFICIARIES.

       (a) In General.--Section 1902(a)(10)(A)(i)(II) of the 
     Social Security Act (42 U.S.C. 1396a(a)(10)(A)(i)(II)) is 
     amended--
       (1) by inserting ``(aa)'' after ``(II)'';
       (2) by striking ``) and'' and inserting ``and'';
       (3) by striking ``section or who are'' and inserting 
     ``section), (bb) who are''; and
       (4) by inserting before the comma at the end the following: 
     ``, or (cc) who are under 21 years of age and with respect to 
     whom supplemental security income benefits would be paid 
     under title XVI if subparagraphs (A) and (B) of section 
     1611(c)(7) were applied without regard to the phrase `the 
     first day of the month following' ''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to medical assistance for items and services 
     furnished on or after the date that is 1 year after the date 
     of enactment of this Act.

    Subchapter B--Money Follows the Person Rebalancing Demonstration

     SEC. 6071. MONEY FOLLOWS THE PERSON REBALANCING 
                   DEMONSTRATION.

       (a) Program Purpose and Authority.--The Secretary is 
     authorized to award, on a competitive basis, grants to States 
     in accordance with this section for demonstration projects 
     (each in this section referred to as an ``MFP demonstration 
     project'') designed to achieve the following objectives with 
     respect to institutional and home and community-based long-
     term care services under State Medicaid programs:
       (1) Rebalancing.--Increase the use of home and community-
     based, rather than institutional, long-term care services.
       (2) Money follows the person.--Eliminate barriers or 
     mechanisms, whether in the State law, the State Medicaid 
     plan, the State budget, or otherwise, that prevent or 
     restrict the flexible use of Medicaid funds to enable 
     Medicaid-eligible individuals to receive support for 
     appropriate and necessary long-term services in the settings 
     of their choice.
       (3) Continuity of service.--Increase the ability of the 
     State Medicaid program to assure continued provision of home 
     and community-based long-term care services to eligible 
     individuals who choose to transition from an institutional to 
     a community setting.
       (4) Quality assurance and quality improvement.--Ensure that 
     procedures are in place (at least comparable to those 
     required under the qualified HCB program) to provide quality 
     assurance for eligible individuals receiving Medicaid home 
     and community-based long-term care services and to provide 
     for continuous quality improvement in such services.
       (b) Definitions.--For purposes of this section:
       (1) Home and community-based long-term care services.--The 
     term ``home and community-based long-term care services'' 
     means, with respect to a State Medicaid program, home and 
     community-based services (including home health and personal 
     care services) that are provided under the State's qualified 
     HCB program or that could be provided under such a program 
     but are otherwise provided under the Medicaid program.
       (2) Eligible individual.--The term ``eligible individual'' 
     means, with respect to an MFP demonstration project of a 
     State, an individual in the State--
       (A) who, immediately before beginning participation in the 
     MFP demonstration project--
       (i) resides (and has resided, for a period of not less than 
     6 months or for such longer minimum period, not to exceed 2 
     years, as may be specified by the State) in an inpatient 
     facility;
       (ii) is receiving Medicaid benefits for inpatient services 
     furnished by such inpatient facility; and
       (iii) with respect to whom a determination has been made 
     that, but for the provision of home and community-based long-
     term care services, the individual would continue to require 
     the level of care provided in an inpatient facility and, in 
     any case in which the State applies a more stringent level of 
     care standard as a result of implementing the State plan 
     option permitted under section 1915(i) of the Social Security 
     Act, the individual must continue to require at least the 
     level of care which had resulted in admission to the 
     institution; and
       (B) who resides in a qualified residence beginning on the 
     initial date of participation in the demonstration project.
       (3) Inpatient facility.--The term ``inpatient facility'' 
     means a hospital, nursing facility, or intermediate care 
     facility for the mentally retarded. Such term includes an 
     institution for mental diseases, but only, with respect to a 
     State, to the extent medical assistance is available under 
     the State Medicaid plan for services provided by such 
     institution.
       (4) Medicaid.--The term ``Medicaid'' means, with respect to 
     a State, the State program under title XIX of the Social 
     Security Act (including any waiver or demonstration under 
     such title or under section 1115 of such Act relating to such 
     title).
       (5) Qualified hcb program.--The term ``qualified HCB 
     program'' means a program providing home and community-based 
     long-term care services operating under Medicaid, whether or 
     not operating under waiver authority.
       (6) Qualified residence.--The term ``qualified residence'' 
     means, with respect to an eligible individual--
       (A) a home owned or leased by the individual or the 
     individual's family member;
       (B) an apartment with an individual lease, with lockable 
     access and egress, and which includes living, sleeping, 
     bathing, and cooking areas over which the individual or the 
     individual's family has domain and control; and
       (C) a residence, in a community-based residential setting, 
     in which no more than 4 unrelated individuals reside.
       (7) Qualified expenditures.--The term ``qualified 
     expenditures'' means expenditures by the State under its MFP 
     demonstration project for home and community-based long-term 
     care services for an eligible individual participating in the 
     MFP demonstration project, but only with respect to services 
     furnished during the 12-month period beginning on the date 
     the individual is discharged from an inpatient facility 
     referred to in paragraph (2)(A)(i).
       (8) Self-directed services.--The term ``self-directed'' 
     means, with respect to home and community-based long-term 
     care services for an eligible individual, such services for 
     the individual which are planned and purchased under the 
     direction and control of such individual or the individual's 
     authorized representative (as defined by the Secretary), 
     including the amount, duration, scope, provider, and location 
     of such services, under the State Medicaid program consistent 
     with the following requirements:
       (A) Assessment.--There is an assessment of the needs, 
     capabilities, and preferences of the individual with respect 
     to such services.
       (B) Service plan.--Based on such assessment, there is 
     developed jointly with such individual or the individual's 
     authorized representative a plan for such services for such 
     individual that is approved by the State and that--
       (i) specifies those services, if any, which the individual 
     or the individual's authorized representative would be 
     responsible for directing;
       (ii) identifies the methods by which the individual or the 
     individual's authorized representative or an agency 
     designated by an individual or representative will select, 
     manage, and dismiss providers of such services;
       (iii) specifies the role of family members and others whose 
     participation is sought by the individual or the individual's 
     authorized representative with respect to such services;
       (iv) is developed through a person-centered process that--

       (I) is directed by the individual or the individual's 
     authorized representative;
       (II) builds upon the individual's capacity to engage in 
     activities that promote community life and that respects the 
     individual's preferences, choices, and abilities; and
       (III) involves families, friends, and professionals as 
     desired or required by the individual or the individual's 
     authorized representative;

       (v) includes appropriate risk management techniques that 
     recognize the roles and sharing of responsibilities in 
     obtaining services in a self-directed manner and assure the 
     appropriateness of such plan based upon the resources and 
     capabilities of the individual or the individual's authorized 
     representative; and
       (vi) may include an individualized budget which identifies 
     the dollar value of the services and supports under the 
     control and direction of the individual or the individual's 
     authorized representative.
       (C) Budget Process.--With respect to individualized budgets 
     described in subparagraph

[[Page H12667]]

     (B)(vi), the State application under subsection (c)--
       (i) describes the method for calculating the dollar values 
     in such budgets based on reliable costs and service 
     utilization;
       (ii) defines a process for making adjustments in such 
     dollar values to reflect changes in individual assessments 
     and service plans; and
       (iii) provides a procedure to evaluate expenditures under 
     such budgets.
       (9) State.--The term ``State'' has the meaning given such 
     term for purposes of title XIX of the Social Security Act.
       (c) State Application.--A State seeking approval of an MFP 
     demonstration project shall submit to the Secretary, at such 
     time and in such format as the Secretary requires, an 
     application meeting the following requirements and containing 
     such additional information, provisions, and assurances, as 
     the Secretary may require:
       (1) Assurance of a public development process.--The 
     application contains an assurance that the State has engaged, 
     and will continue to engage, in a public process for the 
     design, development, and evaluation of the MFP demonstration 
     project that allows for input from eligible individuals, the 
     families of such individuals, authorized representatives of 
     such individuals, providers, and other interested parties.
       (2) Operation in connection with qualified hcb program to 
     assure continuity of services.--The State will conduct the 
     MFP demonstration project for eligible individuals in 
     conjunction with the operation of a qualified HCB program 
     that is in operation (or approved) in the State for such 
     individuals in a manner that assures continuity of Medicaid 
     coverage for such individuals so long as such individuals 
     continue to be eligible for medical assistance.
       (3) Demonstration project period.--The application shall 
     specify the period of the MFP demonstration project, which 
     shall include at least 2 consecutive fiscal years in the 5-
     fiscal-year period beginning with fiscal year 2007.
       (4) Service area.--The application shall specify the 
     service area or areas of the MFP demonstration project, which 
     may be a statewide area or 1 or more geographic areas of the 
     State.
       (5) Targeted groups and numbers of individuals served.--The 
     application shall specify--
       (A) the target groups of eligible individuals to be 
     assisted to transition from an inpatient facility to a 
     qualified residence during each fiscal year of the MFP 
     demonstration project;
       (B) the projected numbers of eligible individuals in each 
     targeted group of eligible individuals to be so assisted 
     during each such year; and
       (C) the estimated total annual qualified expenditures for 
     each fiscal year of the MFP demonstration project.
       (6) Individual choice, continuity of care.--The application 
     shall contain assurances that--
       (A) each eligible individual or the individual's authorized 
     representative will be provided the opportunity to make an 
     informed choice regarding whether to participate in the MFP 
     demonstration project;
       (B) each eligible individual or the individual's authorized 
     representative will choose the qualified residence in which 
     the individual will reside and the setting in which the 
     individual will receive home and community-based long-term 
     care services;
       (C) the State will continue to make available, so long as 
     the State operates its qualified HCB program consistent with 
     applicable requirements, home and community-based long-term 
     care services to each individual who completes participation 
     in the MFP demonstration project for as long as the 
     individual remains eligible for medical assistance for such 
     services under such qualified HCB program (including meeting 
     a requirement relating to requiring a level of care provided 
     in an inpatient facility and continuing to require such 
     services, and, if the State applies a more stringent level of 
     care standard as a result of implementing the State plan 
     option permitted under section 1915(i) of the Social Security 
     Act, meeting the requirement for at least the level of care 
     which had resulted in the individual's admission to the 
     institution).
       (7) Rebalancing.--The application shall--
       (A) provide such information as the Secretary may require 
     concerning the dollar amounts of State Medicaid expenditures 
     for the fiscal year, immediately preceding the first fiscal 
     year of the State's MFP demonstration project, for long-term 
     care services and the percentage of such expenditures that 
     were for institutional long-term care services or were for 
     home and community-based long-term care services;
       (B)(i) specify the methods to be used by the State to 
     increase, for each fiscal year during the MFP demonstration 
     project, the dollar amount of such total expenditures for 
     home and community-based long-term care services and the 
     percentage of such total expenditures for long-term care 
     services that are for home and community-based long-term care 
     services; and
       (ii) describe the extent to which the MFP demonstration 
     project will contribute to accomplishment of objectives 
     described in subsection (a).
       (8) Money follows the person.--The application shall 
     describe the methods to be used by the State to eliminate any 
     legal, budgetary, or other barriers to flexibility in the 
     availability of Medicaid funds to pay for long-term care 
     services for eligible individuals participating in the 
     project in the appropriate settings of their choice, 
     including costs to transition from an institutional setting 
     to a qualified residence.
       (9) Maintenance of effort and cost-effectiveness.--The 
     application shall contain or be accompanied by such 
     information and assurances as may be required to satisfy the 
     Secretary that--
       (A) total expenditures under the State Medicaid program for 
     home and community-based long-term care services will not be 
     less for any fiscal year during the MFP demonstration project 
     than for the greater of such expenditures for--
       (i) fiscal year 2005; or
       (ii) any succeeding fiscal year before the first year of 
     the MFP demonstration project; and
       (B) in the case of a qualified HCB program operating under 
     a waiver under subsection (c) or (d) of section 1915 of the 
     Social Security Act (42 U.S.C. 1396n), but for the amount 
     awarded under a grant under this section, the State program 
     would continue to meet the cost-effectiveness requirements of 
     subsection (c)(2)(D) of such section or comparable 
     requirements under subsection (d)(5) of such section, 
     respectively.
       (10) Waiver requests.--The application shall contain or be 
     accompanied by requests for any modification or adjustment of 
     waivers of Medicaid requirements described in subsection 
     (d)(3), including adjustments to the maximum numbers of 
     individuals included and package of benefits, including one-
     time transitional services, provided.
       (11) Quality assurance and quality improvement.--The 
     application shall include--
       (A) a plan satisfactory to the Secretary for quality 
     assurance and quality improvement for home and community-
     based long-term care services under the State Medicaid 
     program, including a plan to assure the health and welfare of 
     individuals participating in the MFP demonstration project; 
     and
       (B) an assurance that the State will cooperate in carrying 
     out activities under subsection (f) to develop and implement 
     continuous quality assurance and quality improvement systems 
     for home and community-based long-term care services.
       (12) Optional program for self-directed services.--If the 
     State elects to provide for any home and community-based 
     long-term care services as self-directed services (as defined 
     in subsection (b)(8)) under the MFP demonstration project, 
     the application shall provide the following:
       (A) Meeting requirements.--A description of how the project 
     will meet the applicable requirements of such subsection for 
     the provision of self-directed services.
       (B) Voluntary election.--A description of how eligible 
     individuals will be provided with the opportunity to make an 
     informed election to receive self-directed services under the 
     project and after the end of the project.
       (C) State support in service plan development.--
     Satisfactory assurances that the State will provide support 
     to eligible individuals who self-direct in developing and 
     implementing their service plans.
       (D) Oversight of receipt of services.--Satisfactory 
     assurances that the State will provide oversight of eligible 
     individual's receipt of such self-directed services, 
     including steps to assure the quality of services provided 
     and that the provision of such services are consistent with 
     the service plan under such subsection.

     Nothing in this section shall be construed as requiring a 
     State to make an election under the project to provide for 
     home and community-based long-term care services as self-
     directed services, or as requiring an individual to elect to 
     receive self-directed services under the project.
       (13) Reports and evaluation.--The application shall provide 
     that--
       (A) the State will furnish to the Secretary such reports 
     concerning the MFP demonstration project, on such timetable, 
     in such uniform format, and containing such information as 
     the Secretary may require, as will allow for reliable 
     comparisons of MFP demonstration projects across States; and
       (B) the State will participate in and cooperate with the 
     evaluation of the MFP demonstration project.
       (d) Secretary's Award of Competitive Grants.--
       (1) In general.--The Secretary shall award grants under 
     this section on a competitive basis to States selected from 
     among those with applications meeting the requirements of 
     subsection (c), in accordance with the provisions of this 
     subsection.
       (2) Selection and modification of state applications.--In 
     selecting State applications for the awarding of such a 
     grant, the Secretary--
       (A) shall take into consideration the manner in which, and 
     extent to which, the State proposes to achieve the objectives 
     specified in subsection (a);
       (B) shall seek to achieve an appropriate national balance 
     in the numbers of eligible individuals, within different 
     target groups of eligible individuals, who are assisted to 
     transition to qualified residences under MFP demonstration 
     projects, and in the geographic distribution of States 
     operating MFP demonstration projects;
       (C) shall give preference to State applications proposing--
       (i) to provide transition assistance to eligible 
     individuals within multiple target groups; and
       (ii) to provide eligible individuals with the opportunity 
     to receive home and community-based long-term care services 
     as self-directed services, as defined in subsection (b)(8); 
     and
       (D) shall take such objectives into consideration in 
     setting the annual amounts of State grant awards under this 
     section.
       (3) Waiver authority.--The Secretary is authorized to waive 
     the following provisions of title XIX of the Social Security 
     Act, to the extent necessary to enable a State initiative to 
     meet the requirements and accomplish the purposes of this 
     section:
       (A) Statewideness.--Section 1902(a)(1), in order to permit 
     implementation of a State initiative in a selected area or 
     areas of the State.
       (B) Comparability.--Section 1902(a)(10)(B), in order to 
     permit a State initiative to assist a selected category or 
     categories of individuals described in subsection (b)(2)(A).

[[Page H12668]]

       (C) Income and resources eligibility.--Section 
     1902(a)(10)(C)(i)(III), in order to permit a State to apply 
     institutional eligibility rules to individuals transitioning 
     to community-based care.
       (D) Provider agreements.--Section 1902(a)(27), in order to 
     permit a State to implement self-directed services in a cost-
     effective manner.
       (4) Conditional approval of outyear grant.--In awarding 
     grants under this section, the Secretary shall condition the 
     grant for the second and any subsequent fiscal years of the 
     grant period on the following:
       (A) Numerical benchmarks.--The State must demonstrate to 
     the satisfaction of the Secretary that it is meeting 
     numerical benchmarks specified in the grant agreement for--
       (i) increasing State Medicaid support for home and 
     community-based long-term care services under subsection 
     (c)(5); and
       (ii) numbers of eligible individuals assisted to transition 
     to qualified residences.
       (B) Quality of care.--The State must demonstrate to the 
     satisfaction of the Secretary that it is meeting the 
     requirements under subsection (c)(11) to assure the health 
     and welfare of MFP demonstration project participants.
       (e) Payments to States; Carryover of Unused Grant 
     Amounts.--
       (1) Payments.--For each calendar quarter in a fiscal year 
     during the period a State is awarded a grant under subsection 
     (d), the Secretary shall pay to the State from its grant 
     award for such fiscal year an amount equal to the lesser of--
       (A) the MFP-enhanced FMAP (as defined in paragraph (5)) of 
     the amount of qualified expenditures made during such 
     quarter; or
       (B) the total amount remaining in such grant award for such 
     fiscal year (taking into account the application of paragraph 
     (2)).
       (2) Carryover of unused amounts.--Any portion of a State 
     grant award for a fiscal year under this section remaining at 
     the end of such fiscal year shall remain available to the 
     State for the next 4 fiscal years, subject to paragraph (3).
       (3) Reawarding of certain unused amounts.--In the case of a 
     State that the Secretary determines pursuant to subsection 
     (d)(4) has failed to meet the conditions for continuation of 
     a MFP demonstration project under this section in a 
     succeeding year or years, the Secretary shall rescind the 
     grant awards for such succeeding year or years, together with 
     any unspent portion of an award for prior years, and shall 
     add such amounts to the appropriation for the immediately 
     succeeding fiscal year for grants under this section.
       (4) Preventing duplication of payment.--The payment under a 
     MFP demonstration project with respect to qualified 
     expenditures shall be in lieu of any payment with respect to 
     such expenditures that could otherwise be paid under 
     Medicaid, including under section 1903(a) of the Social 
     Security Act. Nothing in the previous sentence shall be 
     construed as preventing the payment under Medicaid for such 
     expenditures in a grant year after amounts available to pay 
     for such expenditures under the MFP demonstration project 
     have been exhausted.
       (5) MFP-enhanced fmap.--For purposes of paragraph (1)(A), 
     the ``MFP-enhanced FMAP'', for a State for a fiscal year, is 
     equal to the Federal medical assistance percentage (as 
     defined in the first sentence of section 1905(b)) for the 
     State increased by a number of percentage points equal to 50 
     percent of the number of percentage points by which (A) such 
     Federal medical assistance percentage for the State, is less 
     than (B) 100 percent; but in no case shall the MFP-enhanced 
     FMAP for a State exceed 90 percent.
       (f) Quality Assurance and Improvement; Technical 
     Assistance; Oversight.--
       (1) In general.--The Secretary, either directly or by grant 
     or contract, shall provide for technical assistance to, and 
     oversight of, States for purposes of upgrading quality 
     assurance and quality improvement systems under Medicaid home 
     and community-based waivers, including--
       (A) dissemination of information on promising practices;
       (B) guidance on system design elements addressing the 
     unique needs of participating beneficiaries;
       (C) ongoing consultation on quality, including assistance 
     in developing necessary tools, resources, and monitoring 
     systems; and
       (D) guidance on remedying programmatic and systemic 
     problems.
       (2) Funding.--From the amounts appropriated under 
     subsection (h)(1) for the portion of fiscal year 2007 that 
     begins on January 1, 2007, and ends on September 30, 2007, 
     and for fiscal year 2008, not more than $2,400,000 shall be 
     available to the Secretary to carry out this subsection 
     during the period that begins on January 1, 2007, and ends on 
     September 30, 2011.
       (g) Research and Evaluation.--
       (1) In general.--The Secretary, directly or through grant 
     or contract, shall provide for research on, and a national 
     evaluation of, the program under this section, including 
     assistance to the Secretary in preparing the final report 
     required under paragraph (2). The evaluation shall include an 
     analysis of projected and actual savings related to the 
     transition of individuals to qualified residences in each 
     State conducting an MFP demonstration project.
       (2) Final report.--The Secretary shall make a final report 
     to the President and Congress, not later than September 30, 
     2011, reflecting the evaluation described in paragraph (1) 
     and providing findings and conclusions on the conduct and 
     effectiveness of MFP demonstration projects.
       (3) Funding.--From the amounts appropriated under 
     subsection (h)(1) for each of fiscal years 2008 through 2011, 
     not more than $1,100,000 per year shall be available to the 
     Secretary to carry out this subsection.
       (h) Appropriations.--
       (1) In general.--There are appropriated, from any funds in 
     the Treasury not otherwise appropriated, for grants to carry 
     out this section--
       (A) $250,000,000 for the portion of fiscal year 2007 
     beginning on January 1, 2007, and ending on September 30, 
     2007;
       (B) $300,000,000 for fiscal year 2008;
       (C) $350,000,000 for fiscal year 2009;
       (D) $400,000,000 for fiscal year 2010; and
       (E) $450,000,000 for fiscal year 2011.
       (2) Availability.--Amounts made available under paragraph 
     (1) for a fiscal year shall remain available for the awarding 
     of grants to States by not later than September 30, 2011.

                      Subchapter C--Miscellaneous

     SEC. 6081. MEDICAID TRANSFORMATION GRANTS.

       (a) In General.--Section 1903 of the Social Security Act 
     (42 U.S.C. 1396b), as amended by sections 6037(a)(2) and 
     6043(b), is amended by adding at the end the following new 
     subsection:
       ``(z) Medicaid Transformation Payments.--
       ``(1) In general.--In addition to the payments provided 
     under subsection (a), subject to paragraph (4), the Secretary 
     shall provide for payments to States for the adoption of 
     innovative methods to improve the effectiveness and 
     efficiency in providing medical assistance under this title.
       ``(2) Permissible uses of funds.--The following are 
     examples of innovative methods for which funds provided under 
     this subsection may be used:
       ``(A) Methods for reducing patient error rates through the 
     implementation and use of electronic health records, 
     electronic clinical decision support tools, or e-prescribing 
     programs.
       ``(B) Methods for improving rates of collection from 
     estates of amounts owed under this title.
       ``(C) Methods for reducing waste, fraud, and abuse under 
     the program under this title, such as reducing improper 
     payment rates as measured by annual payment error rate 
     measurement (PERM) project rates.
       ``(D) Implementation of a medication risk management 
     program as part of a drug use review program under section 
     1927(g).
       ``(E) Methods in reducing, in clinically appropriate ways, 
     expenditures under this title for covered outpatient drugs, 
     particularly in the categories of greatest drug utilization, 
     by increasing the utilization of generic drugs through the 
     use of education programs and other incentives to promote 
     greater use of generic drugs.
       ``(F) Methods for improving access to primary and specialty 
     physician care for the uninsured using integrated university-
     based hospital and clinic systems.
       ``(3) Application; terms and conditions.--
       ``(A) In general.--No payments shall be made to a State 
     under this subsection unless the State applies to the 
     Secretary for such payments in a form, manner, and time 
     specified by the Secretary.
       ``(B) Terms and conditions.--Such payments are made under 
     such terms and conditions consistent with this subsection as 
     the Secretary prescribes.
       ``(C) Annual report.--Payment to a State under this 
     subsection is conditioned on the State submitting to the 
     Secretary an annual report on the programs supported by such 
     payment. Such report shall include information on--
       ``(i) the specific uses of such payment;
       ``(ii) an assessment of quality improvements and clinical 
     outcomes under such programs; and
       ``(iii) estimates of cost savings resulting from such 
     programs.
       ``(4) Funding.--
       ``(A) Limitation on funds.--The total amount of payments 
     under this subsection shall be equal to, and shall not 
     exceed--
       ``(i) $75,000,000 for fiscal year 2007; and
       ``(ii) $75,000,000 for fiscal year 2008.
     This subsection constitutes budget authority in advance of 
     appropriations Acts and represents the obligation of the 
     Secretary to provide for the payment of amounts provided 
     under this subsection.
       ``(B) Allocation of funds.--The Secretary shall specify a 
     method for allocating the funds made available under this 
     subsection among States. Such method shall provide preference 
     for States that design programs that target health providers 
     that treat significant numbers of Medicaid beneficiaries. 
     Such method shall provide that not less than 25 percent of 
     such funds shall be allocated among States the population of 
     which (as determined according to data collected by the 
     United States Census Bureau) as of July 1, 2004, was more 
     than 105 percent of the population of the respective State 
     (as so determined) as of April 1, 2000.
       ``(C) Form and manner of payment.--Payment to a State under 
     this subsection shall be made in the same manner as other 
     payments under section 1903(a). There is no requirement for 
     State matching funds to receive payments under this 
     subsection.
       ``(5) Medication risk management program.--
       ``(A) In general.--For purposes of this subsection, the 
     term `medication risk management program' means a program for 
     targeted beneficiaries that ensures that covered outpatient 
     drugs are appropriately used to optimize therapeutic outcomes 
     through improved medication use and to reduce the risk of 
     adverse events.
       ``(B) Elements.--Such program may include the following 
     elements:
       ``(i) The use of established principles and standards for 
     drug utilization review and best practices to analyze 
     prescription drug claims of targeted beneficiaries and 
     identify outlier physicians.
       ``(ii) On an ongoing basis provide outlier physicians--

       ``(I) a comprehensive pharmacy claims history for each 
     targeted beneficiary under their care;
       ``(II) information regarding the frequency and cost of 
     relapses and hospitalizations of targeted beneficiaries under 
     the physician's care; and

[[Page H12669]]

       ``(III) applicable best practice guidelines and empirical 
     references.

       ``(iii) Monitor outlier physician's prescribing, such as 
     failure to refill, dosage strengths, and provide incentives 
     and information to encourage the adoption of best clinical 
     practices.
       ``(C) Targeted beneficiaries.--For purposes of this 
     paragraph, the term `targeted beneficiaries' means Medicaid 
     eligible beneficiaries who are identified as having high 
     prescription drug costs and medical costs, such as 
     individuals with behavioral disorders or multiple chronic 
     diseases who are taking multiple medications.''.

     SEC. 6082. HEALTH OPPORTUNITY ACCOUNTS.

       Title XIX of the Social Security Act, as amended by 
     sections 6035 and 6044, is amended--
       (1) by redesignating section 1938 as section 1939; and
       (2) by inserting after section 1937 the following new 
     section:


                     ``health opportunity accounts

       ``Sec. 1938. (a) Authority.--
       ``(1) In general.--Notwithstanding any other provision of 
     this title, the Secretary shall establish a demonstration 
     program under which States may provide under their State 
     plans under this title (including such a plan operating under 
     a statewide waiver under section 1115) in accordance with 
     this section for the provision of alternative benefits 
     consistent with subsection (c) for eligible population groups 
     in one or more geographic areas of the State specified by the 
     State. An amendment under the previous sentence is referred 
     to in this section as a `State demonstration program'.
       ``(2) Initial demonstration.--
       ``(A) In general.--The demonstration program under this 
     section shall begin on January 1, 2007. During the first 5 
     years of such program, the Secretary shall not approve more 
     than 10 States to conduct demonstration programs under this 
     section, with each State demonstration program covering 1 or 
     more geographic areas specified by the State. After such 5-
     year period--
       ``(i) unless the Secretary finds, taking into account cost-
     effectiveness, quality of care, and other criteria that the 
     Secretary specifies, that a State demonstration program 
     previously implemented has been unsuccessful, such a 
     demonstration program may be extended or made permanent in 
     the State; and
       ``(ii) unless the Secretary finds, taking into account 
     cost-effectiveness, quality of care, and other criteria that 
     the Secretary specifies, that all State demonstration 
     programs previously implemented were unsuccessful, other 
     States may implement State demonstration programs.
       ``(B) GAO report.--
       ``(i) In general.--Not later than 3 months after the end of 
     the 5-year period described in subparagraph (A), the 
     Comptroller General of the United States shall submit a 
     report to Congress evaluating the demonstration programs 
     conducted under this section during such period.
       ``(ii) Appropriation.--Out of any funds in the Treasury not 
     otherwise appropriated, there is appropriated to the 
     Comptroller General of the United States, $550,000 for the 
     period of fiscal years 2007 through 2010 to carry out clause 
     (i).
       ``(3) Approval.--The Secretary shall not approve a State 
     demonstration program under paragraph (1) unless the program 
     includes the following:
       ``(A) Creating patient awareness of the high cost of 
     medical care.
       ``(B) Providing incentives to patients to seek preventive 
     care services.
       ``(C) Reducing inappropriate use of health care services.
       ``(D) Enabling patients to take responsibility for health 
     outcomes.
       ``(E) Providing enrollment counselors and ongoing education 
     activities.
       ``(F) Providing transactions involving health opportunity 
     accounts to be conducted electronically and without cash.
       ``(G) Providing access to negotiated provider payment rates 
     consistent with this section.
     Nothing in this section shall be construed as preventing a 
     State demonstration program from providing incentives for 
     patients obtaining appropriate preventive care (as defined 
     for purposes of section 223(c)(2)(C) of the Internal Revenue 
     Code of 1986), such as additional account contributions for 
     an individual demonstrating healthy prevention practices.
       ``(4) No requirement for statewideness.--Nothing in this 
     section or any other provision of law shall be construed to 
     require that a State must provide for the implementation of a 
     State demonstration program on a Statewide basis.
       ``(b) Eligible Population Groups.--
       ``(1) In general.--A State demonstration program under this 
     section shall specify the eligible population groups 
     consistent with paragraphs (2) and (3).
       ``(2) Eligibility limitations during initial demonstration 
     period.--During the initial 5 years of the demonstration 
     program under this section, a State demonstration program 
     shall not apply to any of the following individuals:
       ``(A) Individuals who are 65 years of age or older.
       ``(B) Individuals who are disabled, regardless of whether 
     or not their eligibility for medical assistance under this 
     title is based on such disability.
       ``(C) Individuals who are eligible for medical assistance 
     under this title only because they are (or were within the 
     previous 60 days) pregnant.
       ``(D) Individuals who have been eligible for medical 
     assistance for a continuous period of less than 3 months.
       ``(3) Additional limitations.--A State demonstration 
     program shall not apply to any individual within a category 
     of individuals described in section 1937(a)(2)(B).
       ``(4) Limitations.--
       ``(A) State option.--This subsection shall not be construed 
     as preventing a State from further limiting eligibility.
       ``(B) On enrollees in medicaid managed care 
     organizations.--Insofar as the State provides for eligibility 
     of individuals who are enrolled in medicaid managed care 
     organizations, such individuals may participate in the State 
     demonstration program only if the State provides assurances 
     satisfactory to the Secretary that the following conditions 
     are met with respect to any such organization:
       ``(i) In no case may the number of such individuals 
     enrolled in the organization who participate in the program 
     exceed 5 percent of the total number of individuals enrolled 
     in such organization.
       ``(ii) The proportion of enrollees in the organization who 
     so participate is not significantly disproportionate to the 
     proportion of such enrollees in other such organizations who 
     participate.
       ``(iii) The State has provided for an appropriate 
     adjustment in the per capita payments to the organization to 
     account for such participation, taking into account 
     differences in the likely use of health services between 
     enrollees who so participate and enrollees who do not so 
     participate.
       ``(5) Voluntary participation.--An eligible individual 
     shall be enrolled in a State demonstration program only if 
     the individual voluntarily enrolls. Except in such hardship 
     cases as the Secretary shall specify, such an enrollment 
     shall be effective for a period of 12 months, but may be 
     extended for additional periods of 12 months each with the 
     consent of the individual.
       ``(6) 1-year moratorium for reenrollment.--An eligible 
     individual who, for any reason, is disenrolled from a State 
     demonstration program conducted under this section shall not 
     be permitted to reenroll in such program before the end of 
     the 1-year period that begins on the effective date of such 
     disenrollment.
       ``(c) Alternative Benefits.--
       ``(1) In general.--The alternative benefits provided under 
     this section shall consist, consistent with this subsection, 
     of at least--
       ``(A) coverage for medical expenses in a year for items and 
     services for which benefits are otherwise provided under this 
     title after an annual deductible described in paragraph (2) 
     has been met; and
       ``(B) contribution into a health opportunity account.

     Nothing in subparagraph (A) shall be construed as preventing 
     a State from providing for coverage of preventive care 
     (referred to in subsection (a)(3)) within the alternative 
     benefits without regard to the annual deductible.
       ``(2) Annual deductible.--The amount of the annual 
     deductible described in paragraph (1)(A) shall be at least 
     100 percent, but no more than 110 percent, of the annualized 
     amount of contributions to the health opportunity account 
     under subsection (d)(2)(A)(i), determined without regard to 
     any limitation described in subsection (d)(2)(C)(i)(II).
       ``(3) Access to negotiated provider payment rates.--
       ``(A) Fee-for-service enrollees.--In the case of an 
     individual who is participating in a State demonstration 
     program and who is not enrolled with a medicaid managed care 
     organization, the State shall provide that the individual may 
     obtain demonstration program medicaid services from--
       ``(i) any participating provider under this title at the 
     same payment rates that would be applicable to such services 
     if the deductible described in paragraph (1)(A) was not 
     applicable; or
       ``(ii) any other provider at payment rates that do not 
     exceed 125 percent of the payment rate that would be 
     applicable to such services furnished by a participating 
     provider under this title if the deductible described in 
     paragraph (1)(A) was not applicable.
       ``(B) Treatment under medicaid managed care plans.--In the 
     case of an individual who is participating in a State 
     demonstration program and is enrolled with a medicaid managed 
     care organization, the State shall enter into an arrangement 
     with the organization under which the individual may obtain 
     demonstration program medicaid services from any provider 
     described in clause (ii) of subparagraph (A) at payment rates 
     that do not exceed the payment rates that may be imposed 
     under that clause.
       ``(C) Computation.--The payment rates described in 
     subparagraphs (A) and (B) shall be computed without regard to 
     any cost sharing that would be otherwise applicable under 
     sections 1916 and 1916A.
       ``(D) Definitions.--For purposes of this paragraph:
       ``(i) The term `demonstration program medicaid services' 
     means, with respect to an individual participating in a State 
     demonstration program, services for which the individual 
     would be provided medical assistance under this title but for 
     the application of the deductible described in paragraph 
     (1)(A).
       ``(ii) The term `participating provider' means--

       ``(I) with respect to an individual described in 
     subparagraph (A), a health care provider that has entered 
     into a participation agreement with the State for the 
     provision of services to individuals entitled to benefits 
     under the State plan; or
       ``(II) with respect to an individual described in 
     subparagraph (B) who is enrolled in a medicaid managed care 
     organization, a health care provider that has entered into an 
     arrangement for the provision of services to enrollees of the 
     organization under this title.

       ``(4) No effect on subsequent benefits.--Except as provided 
     under paragraphs (1) and (2), alternative benefits for an 
     eligible individual shall consist of the benefits otherwise 
     provided to the individual, including cost sharing relating 
     to such benefits.

[[Page H12670]]

       ``(5) Overriding cost sharing and comparability 
     requirements for alternative benefits.--The provisions of 
     this title relating to cost sharing for benefits (including 
     sections 1916 and 1916A) shall not apply with respect to 
     benefits to which the annual deductible under paragraph 
     (1)(A) applies. The provisions of section 1902(a)(10)(B) 
     (relating to comparability) shall not apply with respect to 
     the provision of alternative benefits (as described in this 
     subsection).
       ``(6) Treatment as medical assistance.--Subject to 
     subparagraphs (D) and (E) of subsection (d)(2), payments for 
     alternative benefits under this section (including 
     contributions into a health opportunity account) shall be 
     treated as medical assistance for purposes of section 
     1903(a).
       ``(7) Use of tiered deductible and cost sharing.--
       ``(A) In general.--A State--
       ``(i) may vary the amount of the annual deductible applied 
     under paragraph (1)(A) based on the income of the family 
     involved so long as it does not favor families with higher 
     income over those with lower income; and
       ``(ii) may vary the amount of the maximum out-of-pocket 
     cost sharing (as defined in subparagraph (B)) based on the 
     income of the family involved so long as it does not favor 
     families with higher income over those with lower income.
       ``(B) Maximum out-of-pocket cost sharing.--For purposes of 
     subparagraph (A)(ii), the term `maximum out-of-pocket cost 
     sharing' means, for an individual or family, the amount by 
     which the annual deductible level applied under paragraph 
     (1)(A) to the individual or family exceeds the balance in the 
     health opportunity account for the individual or family.
       ``(8) Contributions by employers.--Nothing in this section 
     shall be construed as preventing an employer from providing 
     health benefits coverage consisting of the coverage described 
     in paragraph (1)(A) to individuals who are provided 
     alternative benefits under this section.
       ``(d) Health Opportunity Account.--
       ``(1) In general.--For purposes of this section, the term 
     `health opportunity account' means an account that meets the 
     requirements of this subsection.
       ``(2) Contributions.--
       ``(A) In general.--No contribution may be made into a 
     health opportunity account except--
       ``(i) contributions by the State under this title; and
       ``(ii) contributions by other persons and entities, such as 
     charitable organizations, as permitted under section 1903(w).
       ``(B) State contribution.--A State shall specify the 
     contribution amount that shall be deposited under 
     subparagraph (A)(i) into a health opportunity account.
       ``(C) Limitation on annual state contribution provided and 
     permitting imposition of maximum account balance.--
       ``(i) In general.--A State--

       ``(I) may impose limitations on the maximum contributions 
     that may be deposited under subparagraph (A)(i) into a health 
     opportunity account in a year;
       ``(II) may limit contributions into such an account once 
     the balance in the account reaches a level specified by the 
     State; and
       ``(III) subject to clauses (ii) and (iii) and subparagraph 
     (D)(i), may not provide contributions described in 
     subparagraph (A)(i) to a health opportunity account on behalf 
     of an individual or family to the extent the amount of such 
     contributions (including both State and Federal shares) 
     exceeds, on an annual basis, $2,500 for each individual (or 
     family member) who is an adult and $1,000 for each individual 
     (or family member) who is a child.

       ``(ii) Indexing of dollar limitations.--For each year after 
     2006, the dollar amounts specified in clause (i)(III) shall 
     be annually increased by the Secretary by a percentage that 
     reflects the annual percentage increase in the medical care 
     component of the consumer price index for all urban 
     consumers.
       ``(iii) Budget neutral adjustment.--A State may provide for 
     dollar limitations in excess of those specified in clause 
     (i)(III) (as increased under clause (ii)) for specified 
     individuals if the State provides assurances satisfactory to 
     the Secretary that contributions otherwise made to other 
     individuals will be reduced in a manner so as to provide for 
     aggregate contributions that do not exceed the aggregate 
     contributions that would otherwise be permitted under this 
     subparagraph.
       ``(D) Limitations on federal matching.--
       ``(i) State contribution.--A State may contribute under 
     subparagraph (A)(i) amounts to a health opportunity account 
     in excess of the limitations provided under subparagraph 
     (C)(i)(III), but no Federal financial participation shall be 
     provided under section 1903(a) with respect to contributions 
     in excess of such limitations.
       ``(ii) No ffp for private contributions.--No Federal 
     financial participation shall be provided under section 
     1903(a) with respect to any contributions described in 
     subparagraph (A)(ii) to a health opportunity account.
       ``(E) Application of different matching rates.--The 
     Secretary shall provide a method under which, for 
     expenditures made from a health opportunity account for 
     medical care for which the Federal matching rate under 
     section 1903(a) exceeds the Federal medical assistance 
     percentage, a State may obtain payment under such section at 
     such higher matching rate for such expenditures.
       ``(3) Use.--
       ``(A) General uses.--
       ``(i) In general.--Subject to the succeeding provisions of 
     this paragraph, amounts in a health opportunity account may 
     be used for payment of such health care expenditures as the 
     State specifies.
       ``(ii) General limitation.--Subject to subparagraph 
     (B)(ii), in no case shall such account be used for payment 
     for health care expenditures that are not payment of medical 
     care (as defined by section 213(d) of the Internal Revenue 
     Code of 1986).
       ``(iii) State restrictions.--In applying clause (i), a 
     State may restrict payment for--

       ``(I) providers of items and services to providers that are 
     licensed or otherwise authorized under State law to provide 
     the item or service and may deny payment for such a provider 
     on the basis that the provider has been found, whether with 
     respect to this title or any other health benefit program, to 
     have failed to meet quality standards or to have committed 1 
     or more acts of fraud or abuse; and
       ``(II) items and services insofar as the State finds they 
     are not medically appropriate or necessary.

       ``(iv) Electronic withdrawals.--The State demonstration 
     program shall provide for a method whereby withdrawals may be 
     made from the account for such purposes using an electronic 
     system and shall not permit withdrawals from the account in 
     cash.
       ``(B) Maintenance of health opportunity account after 
     becoming ineligible for public benefit.--
       ``(i) In general.--Notwithstanding any other provision of 
     law, if an account holder of a health opportunity account 
     becomes ineligible for benefits under this title because of 
     an increase in income or assets--

       ``(I) no additional contribution shall be made into the 
     account under paragraph (2)(A)(i);
       ``(II) subject to clause (iii), the balance in the account 
     shall be reduced by 25 percent; and
       ``(III) subject to the succeeding provisions of this 
     subparagraph, the account shall remain available to the 
     account holder for 3 years after the date on which the 
     individual becomes ineligible for such benefits for 
     withdrawals under the same terms and conditions as if the 
     account holder remained eligible for such benefits, and such 
     withdrawals shall be treated as medical assistance in 
     accordance with subsection (c)(6).

       ``(ii) Special rules.--Withdrawals under this subparagraph 
     from an account--

       ``(I) shall be available for the purchase of health 
     insurance coverage; and
       ``(II) may, subject to clause (iv), be made available (at 
     the option of the State) for such additional expenditures 
     (such as job training and tuition expenses) specified by the 
     State (and approved by the Secretary) as the State may 
     specify.

       ``(iii) Exception from 25 percent savings to government for 
     private contributions.--Clause (i)(II) shall not apply to the 
     portion of the account that is attributable to contributions 
     described in paragraph (2)(A)(ii). For purposes of accounting 
     for such contributions, withdrawals from a health opportunity 
     account shall first be attributed to contributions described 
     in paragraph (2)(A)(i).
       ``(iv) Condition for non-health withdrawals.--No withdrawal 
     may be made from an account under clause (ii)(II) unless the 
     account holder has participated in the program under this 
     section for at least 1 year.
       ``(v) No requirement for continuation of coverage.--An 
     account holder of a health opportunity account, after 
     becoming ineligible for medical assistance under this title, 
     is not required to purchase high-deductible or other 
     insurance as a condition of maintaining or using the account.
       ``(4) Administration.--A State may coordinate 
     administration of health opportunity accounts through the use 
     of a third party administrator and reasonable expenditures 
     for the use of such administrator shall be reimbursable to 
     the State in the same manner as other administrative 
     expenditures under section 1903(a)(7).
       ``(5) Treatment.--Amounts in, or contributed to, a health 
     opportunity account shall not be counted as income or assets 
     for purposes of determining eligibility for benefits under 
     this title.
       ``(6) Unauthorized withdrawals.--A State may establish 
     procedures--
       ``(A) to penalize or remove an individual from the health 
     opportunity account based on nonqualified withdrawals by the 
     individual from such an account; and
       ``(B) to recoup costs that derive from such nonqualified 
     withdrawals.''.

     SEC. 6083. STATE OPTION TO ESTABLISH NON-EMERGENCY MEDICAL 
                   TRANSPORTATION PROGRAM.

       (a) In General.--Section 1902(a) of the Social Security Act 
     (42 U.S.C. 1396a(a)), as amended by sections 6033(a) and 
     6035(b), is amended--
       (1) in paragraph (68), by striking ``and'' at the end;
       (2) in paragraph (69) by striking the period at the end and 
     inserting ``; and''; and
       (3) by inserting after paragraph (69) the following:
       ``(70) at the option of the State and notwithstanding 
     paragraphs (1), (10)(B), and (23), provide for the 
     establishment of a non-emergency medical transportation 
     brokerage program in order to more cost-effectively provide 
     transportation for individuals eligible for medical 
     assistance under the State plan who need access to medical 
     care or services and have no other means of transportation 
     which--
       ``(A) may include a wheelchair van, taxi, stretcher car, 
     bus passes and tickets, secured transportation, and such 
     other transportation as the Secretary determines appropriate; 
     and
       ``(B) may be conducted under contract with a broker who--
       ``(i) is selected through a competitive bidding process 
     based on the State's evaluation of the broker's experience, 
     performance, references, resources, qualifications, and 
     costs;
       ``(ii) has oversight procedures to monitor beneficiary 
     access and complaints and ensure that transport personnel are 
     licensed, qualified, competent, and courteous;

[[Page H12671]]

       ``(iii) is subject to regular auditing and oversight by the 
     State in order to ensure the quality of the transportation 
     services provided and the adequacy of beneficiary access to 
     medical care and services; and
       ``(iv) complies with such requirements related to 
     prohibitions on referrals and conflict of interest as the 
     Secretary shall establish (based on the prohibitions on 
     physician referrals under section 1877 and such other 
     prohibitions and requirements as the Secretary determines to 
     be appropriate).''.
       (b) Effective Date.--The amendments made by subsection (a) 
     take effect on the date of the enactment of this Act.

     SEC. 6084. EXTENSION OF TRANSITIONAL MEDICAL ASSISTANCE (TMA) 
                   AND ABSTINENCE EDUCATION PROGRAM.

       Effective as if enacted on December 31, 2005, activities 
     authorized by sections 510 and 1925 of the Social Security 
     Act shall continue through December 31, 2006, in the manner 
     authorized for fiscal year 2005, notwithstanding section 
     1902(e)(1)(A) of such Act, and out of any money in the 
     Treasury of the United States not otherwise appropriated, 
     there are hereby appropriated such sums as may be necessary 
     for such purpose. Grants and payments may be made pursuant to 
     this authority through the first quarter of fiscal year 2007 
     at the level provided for such activities through the first 
     quarter of fiscal year 2006.

     SEC. 6085. EMERGENCY SERVICES FURNISHED BY NON-CONTRACT 
                   PROVIDERS FOR MEDICAID MANAGED CARE ENROLLEES.

       (a) In General.--Section 1932(b)(2) of the Social Security 
     Act (42 U.S.C. 1396u-2(b)(2)) is amended by adding at the end 
     the following new subparagraph:
       ``(D) Emergency services furnished by non-contract 
     providers.--Any provider of emergency services that does not 
     have in effect a contract with a medicaid managed care entity 
     that establishes payment amounts for services furnished to a 
     beneficiary enrolled in the entity's Medicaid managed care 
     plan must accept as payment in full no more than the amounts 
     (less any payments for indirect costs of medical education 
     and direct costs of graduate medical education) that it could 
     collect if the beneficiary received medical assistance under 
     this title other than through enrollment in such an entity. 
     In a State where rates paid to hospitals under the State plan 
     are negotiated by contract and not publicly released, the 
     payment amount applicable under this subparagraph shall be 
     the average contract rate that would apply under the State 
     plan for general acute care hospitals or the average contract 
     rate that would apply under such plan for tertiary 
     hospitals.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on January 1, 2007.

     SEC. 6086. EXPANDED ACCESS TO HOME AND COMMUNITY-BASED 
                   SERVICES FOR THE ELDERLY AND DISABLED.

       (a) Home and Community-Based Services as an Optional 
     Benefit for Elderly and Disabled Individuals.--Section 1915 
     of the Social Security Act (42 U.S.C. 1396n) is amended by 
     adding at the end the following new subsection:
       ``(i) State Plan Amendment Option To Provide Home and 
     Community-Based Services for Elderly and Disabled 
     Individuals.--
       ``(1) In general.--Subject to the succeeding provisions of 
     this subsection, a State may provide through a State plan 
     amendment for the provision of medical assistance for home 
     and community-based services (within the scope of services 
     described in paragraph (4)(B) of subsection (c) for which the 
     Secretary has the authority to approve a waiver and not 
     including room and board or such other services requested by 
     the State as the Secretary may approve) for individuals 
     eligible for medical assistance under the State plan whose 
     income does not exceed 150 percent of the poverty line (as 
     defined in section 2110(c)(5)), without determining that but 
     for the provision of such services the individuals would 
     require the level of care provided in a hospital or a nursing 
     facility or intermediate care facility for the mentally 
     retarded, but only if the State meets the following 
     requirements:
       ``(A) Needs-based criteria for eligibility for, and receipt 
     of, home and community-based services.--The State establishes 
     needs-based criteria for determining an individual's 
     eligibility under the State plan for medical assistance for 
     such home and community-based services, and if the individual 
     is eligible for such services, the specific home and 
     community-based services that the individual will receive.
       ``(B) Establishment of more stringent needs-based 
     eligibility criteria for institutionalized care.--The State 
     establishes needs-based criteria for determining whether an 
     individual requires the level of care provided in a hospital, 
     a nursing facility, or an intermediate care facility for the 
     mentally retarded under the State plan or under any waiver of 
     such plan that are more stringent than the needs-based 
     criteria established under subparagraph (A) for determining 
     eligibility for home and community-based services.
       ``(C) Projection of number of individuals to be provided 
     home and community-based services.--
       ``(i) In general.--The State submits to the Secretary, in 
     such form and manner, and upon such frequency as the 
     Secretary shall specify, the projected number of individuals 
     to be provided home and community-based services.
       ``(ii) Authority to limit number of eligible individuals.--
     A State may limit the number of individuals who are eligible 
     for such services and may establish waiting lists for the 
     receipt of such services.
       ``(D) Criteria based on individual assessment.--
       ``(i) In general.--The criteria established by the State 
     for purposes of subparagraphs (A) and (B) requires an 
     assessment of an individual's support needs and capabilities, 
     and may take into account the inability of the individual to 
     perform 2 or more activities of daily living (as defined in 
     section 7702B(c)(2)(B) of the Internal Revenue Code of 1986) 
     or the need for significant assistance to perform such 
     activities, and such other risk factors as the State 
     determines to be appropriate.
       ``(ii) Adjustment authority.--The State plan amendment 
     provides the State with the option to modify the criteria 
     established under subparagraph (A) (without having to obtain 
     prior approval from the Secretary) in the event that the 
     enrollment of individuals eligible for home and community-
     based services exceeds the projected enrollment submitted for 
     purposes of subparagraph (C), but only if--

       ``(I) the State provides at least 60 days notice to the 
     Secretary and the public of the proposed modification;
       ``(II) the State deems an individual receiving home and 
     community-based services on the basis of the most recent 
     version of the criteria in effect prior to the effective date 
     of the modification to be eligible for such services for a 
     period of at least 12 months beginning on the date the 
     individual first received medical assistance for such 
     services; and
       ``(III) after the effective date of such modification, the 
     State, at a minimum, applies the criteria for determining 
     whether an individual requires the level of care provided in 
     a hospital, a nursing facility, or an intermediate care 
     facility for the mentally retarded under the State plan or 
     under any waiver of such plan which applied prior to the 
     application of the more stringent criteria developed under 
     subparagraph (B).

       ``(E) Independent evaluation and assessment.--
       ``(i) Eligibility determination.--The State uses an 
     independent evaluation for making the determinations 
     described in subparagraphs (A) and (B).
       ``(ii) Assessment.--In the case of an individual who is 
     determined to be eligible for home and community-based 
     services, the State uses an independent assessment, based on 
     the needs of the individual to--

       ``(I) determine a necessary level of services and supports 
     to be provided, consistent with an individual's physical and 
     mental capacity;
       ``(II) prevent the provision of unnecessary or 
     inappropriate care; and
       ``(III) establish an individualized care plan for the 
     individual in accordance with subparagraph (G).

       ``(F) Assessment.--The independent assessment required 
     under subparagraph (E)(ii) shall include the following:
       ``(i) An objective evaluation of an individual's inability 
     to perform 2 or more activities of daily living (as defined 
     in section 7702B(c)(2)(B) of the Internal Revenue Code of 
     1986) or the need for significant assistance to perform such 
     activities.
       ``(ii) A face-to-face evaluation of the individual by an 
     individual trained in the assessment and evaluation of 
     individuals whose physical or mental conditions trigger a 
     potential need for home and community-based services.
       ``(iii) Where appropriate, consultation with the 
     individual's family, spouse, guardian, or other responsible 
     individual.
       ``(iv) Consultation with appropriate treating and 
     consulting health and support professionals caring for the 
     individual.
       ``(v) An examination of the individual's relevant history, 
     medical records, and care and support needs, guided by best 
     practices and research on effective strategies that result in 
     improved health and quality of life outcomes.
       ``(vi) If the State offers individuals the option to self-
     direct the purchase of, or control the receipt of, home and 
     community-based service, an evaluation of the ability of the 
     individual or the individual's representative to self-direct 
     the purchase of, or control the receipt of, such services if 
     the individual so elects.
       ``(G) Individualized care plan.--
       ``(i) In general.--In the case of an individual who is 
     determined to be eligible for home and community-based 
     services, the State uses the independent assessment 
     required under subparagraph (E)(ii) to establish a written 
     individualized care plan for the individual.
       ``(ii) Plan requirements.--The State ensures that the 
     individualized care plan for an individual--

       ``(I) is developed--

       ``(aa) in consultation with the individual, the 
     individual's treating physician, health care or support 
     professional, or other appropriate individuals, as defined by 
     the State, and, where appropriate the individual's family, 
     caregiver, or representative; and
       ``(bb) taking into account the extent of, and need for, any 
     family or other supports for the individual;

       ``(II) identifies the necessary home and community-based 
     services to be furnished to the individual (or, if the 
     individual elects to self-direct the purchase of, or control 
     the receipt of, such services, funded for the individual); 
     and
       ``(III) is reviewed at least annually and as needed when 
     there is a significant change in the individual's 
     circumstances.

       ``(iii) State option to offer election for self-directed 
     services.--

       ``(I) Individual choice.--At the option of the State, the 
     State may allow an individual or the individual's 
     representative to elect to receive self-directed home and 
     community-based services in a manner which gives them the 
     most control over such services consistent with the 
     individual's abilities and the requirements of subclauses 
     (II) and (III).
       ``(II) Self-directed services.--The term `self-directed' 
     means, with respect to the home and community-based services 
     offered under the State plan amendment, such services for the 
     individual which are planned and purchased

[[Page H12672]]

     under the direction and control of such individual or the 
     individual's authorized representative, including the amount, 
     duration, scope, provider, and location of such services, 
     under the State plan consistent with the following 
     requirements:

       ``(aa) Assessment.--There is an assessment of the needs, 
     capabilities, and preferences of the individual with respect 
     to such services.
       ``(bb) Service plan.--Based on such assessment, there is 
     developed jointly with such individual or the individual's 
     authorized representative a plan for such services for such 
     individual that is approved by the State and that satisfies 
     the requirements of subclause (III).

       ``(III) Plan requirements.--For purposes of subclause 
     (II)(bb), the requirements of this subclause are that the 
     plan--

       ``(aa) specifies those services which the individual or the 
     individual's authorized representative would be responsible 
     for directing;
       ``(bb) identifies the methods by which the individual or 
     the individual's authorized representative will select, 
     manage, and dismiss providers of such services;
       ``(cc) specifies the role of family members and others 
     whose participation is sought by the individual or the 
     individual's authorized representative with respect to such 
     services;
       ``(dd) is developed through a person-centered process that 
     is directed by the individual or the individual's authorized 
     representative, builds upon the individual's capacity to 
     engage in activities that promote community life and that 
     respects the individual's preferences, choices, and 
     abilities, and involves families, friends, and professionals 
     as desired or required by the individual or the individual's 
     authorized representative;
       ``(ee) includes appropriate risk management techniques that 
     recognize the roles and sharing of responsibilities in 
     obtaining services in a self-directed manner and assure the 
     appropriateness of such plan based upon the resources and 
     capabilities of the individual or the individual's authorized 
     representative; and
       ``(ff) may include an individualized budget which 
     identifies the dollar value of the services and supports 
     under the control and direction of the individual or the 
     individual's authorized representative.

       ``(IV) Budget process.--With respect to individualized 
     budgets described in subclause (III)(ff), the State plan 
     amendment--
       ``(aa) describes the method for calculating the dollar 
     values in such budgets based on reliable costs and service 
     utilization;
       ``(bb) defines a process for making adjustments in such 
     dollar values to reflect changes in individual assessments 
     and service plans; and
       ``(cc) provides a procedure to evaluate expenditures under 
     such budgets.
       ``(H) Quality assurance; conflict of interest standards.--
       ``(i) Quality assurance.--The State ensures that the 
     provision of home and community-based services meets Federal 
     and State guidelines for quality assurance.
       ``(ii) Conflict of interest standards.--The State 
     establishes standards for the conduct of the independent 
     evaluation and the independent assessment to safeguard 
     against conflicts of interest.
       ``(I) Redeterminations and appeals.--The State allows for 
     at least annual redeterminations of eligibility, and appeals 
     in accordance with the frequency of, and manner in which, 
     redeterminations and appeals of eligibility are made under 
     the State plan.
       ``(J) Presumptive eligibility for assessment.--The State, 
     at its option, elects to provide for a period of presumptive 
     eligibility (not to exceed a period of 60 days) only for 
     those individuals that the State has reason to believe may be 
     eligible for home and community-based services. Such 
     presumptive eligibility shall be limited to medical 
     assistance for carrying out the independent evaluation and 
     assessment under subparagraph (E) to determine an 
     individual's eligibility for such services and if the 
     individual is so eligible, the specific home and community-
     based services that the individual will receive.
       ``(2) Definition of individual's representative.--In this 
     section, the term `individual's representative' means, with 
     respect to an individual, a parent, a family member, or a 
     guardian of the individual, an advocate for the individual, 
     or any other individual who is authorized to represent the 
     individual.
       ``(3) Nonapplication.--A State may elect in the State plan 
     amendment approved under this section to not comply with the 
     requirements of section 1902(a)(1) (relating to 
     statewideness) and section 1902(a)(10)(C)(i)(III) (relating 
     to income and resource rules applicable in the community), 
     but only for purposes of provided home and community-based 
     services in accordance with such amendment. Any such election 
     shall not be construed to apply to the provision of services 
     to an individual receiving medical assistance in an 
     institutionalized setting as a result of a determination that 
     the individual requires the level of care provided in a 
     hospital or a nursing facility or intermediate care facility 
     for the mentally retarded.
       ``(4) No effect on other waiver authority.--Nothing in this 
     subsection shall be construed as affecting the option of a 
     State to offer home and community-based services under a 
     waiver under subsections (c) or (d) of this section or under 
     section 1115.
       ``(5) Continuation of federal financial participation for 
     medical assistance provided to individuals as of effective 
     date of state plan amendment.--Notwithstanding paragraph 
     (1)(B), Federal financial participation shall continue to be 
     available for an individual who is receiving medical 
     assistance in an institutionalized setting, or home and 
     community-based services provided under a waiver under this 
     section or section 1115 that is in effect as of the effective 
     date of the State plan amendment submitted under this 
     subsection, as a result of a determination that the 
     individual requires the level of care provided in a hospital 
     or a nursing facility or intermediate care facility for the 
     mentally retarded, without regard to whether such individuals 
     satisfy the more stringent eligibility criteria established 
     under that paragraph, until such time as the individual is 
     discharged from the institution or waiver program or no 
     longer requires such level of care.''.
       (b) Quality of Care Measures.--
       (1) In general.--The Secretary, acting through the Director 
     of the Agency for Healthcare Research and Quality, shall 
     consult with consumers, health and social service providers 
     and other professionals knowledgeable about long-term care 
     services and supports to develop program performance 
     indicators, client function indicators, and measures of 
     client satisfaction with respect to home and community-based 
     services offered under State Medicaid programs.
       (2) Best practices.--The Secretary shall--
       (A) use the indicators and measures developed under 
     paragraph (1) to assess such home and community-based 
     services, the outcomes associated with the receipt of such 
     services (particularly with respect to the health and welfare 
     of the recipient of the services), and the overall system for 
     providing home and community-based services under the 
     Medicaid program under title XIX of the Social Security Act; 
     and
       (B) make publicly available the best practices identified 
     through such assessment and a comparative analyses of the 
     system features of each State.
       (3) Appropriation.--Out of any funds in the Treasury not 
     otherwise appropriated, there is appropriated to the 
     Secretary of Health and Human Services, $1,000,000 for the 
     period of fiscal years 2006 through 2010 to carry out this 
     subsection.
       (c) Effective Date.--The amendments made by subsections (a) 
     and (b) take effect on January 1, 2007, and apply to 
     expenditures for medical assistance for home and community-
     based services provided in accordance with section 1915(i) of 
     the Social Security Act (as added by subsections (a) and (b)) 
     on or after that date.

     SEC. 6087. OPTIONAL CHOICE OF SELF-DIRECTED PERSONAL 
                   ASSISTANCE SERVICES (CASH AND COUNSELING).

       (a) Exemption From Certain Requirements.--Section 1915 of 
     the Social Security Act (42 U.S.C. 1396n), as amended by 
     section 6086(a), is amended by adding at the end the 
     following new subsection:
       ``(j)(1) A State may provide, as `medical assistance', 
     payment for part or all of the cost of self-directed personal 
     assistance services (other than room and board) under the 
     plan which are provided pursuant to a written plan of care to 
     individuals with respect to whom there has been a 
     determination that, but for the provision of such services, 
     the individuals would require and receive personal care 
     services under the plan, or home and community-based services 
     provided pursuant to a waiver under subsection (c). Self-
     directed personal assistance services may not be provided 
     under this subsection to individuals who reside in a home or 
     property that is owned, operated, or controlled by a provider 
     of services, not related by blood or marriage.
       ``(2) The Secretary shall not grant approval for a State 
     self-directed personal assistance services program under this 
     section unless the State provides assurances satisfactory to 
     the Secretary of the following:
       ``(A) Necessary safeguards have been taken to protect the 
     health and welfare of individuals provided services under the 
     program, and to assure financial accountability for funds 
     expended with respect to such services.
       ``(B) The State will provide, with respect to individuals 
     who--
       ``(i) are entitled to medical assistance for personal care 
     services under the plan, or receive home and community-based 
     services under a waiver granted under subsection (c);
       ``(ii) may require self-directed personal assistance 
     services; and
       ``(iii) may be eligible for self-directed personal 
     assistance services,
     an evaluation of the need for personal care under the plan, 
     or personal services under a waiver granted under subsection 
     (c).
       ``(C) Such individuals who are determined to be likely to 
     require personal care under the plan, or home and community-
     based services under a waiver granted under subsection (c) 
     are informed of the feasible alternatives, if available under 
     the State's self-directed personal assistance services 
     program, at the choice of such individuals, to the provision 
     of personal care services under the plan, or personal 
     assistance services under a waiver granted under subsection 
     (c).
       ``(D) The State will provide for a support system that 
     ensures participants in the self-directed personal assistance 
     services program are appropriately assessed and counseled 
     prior to enrollment and are able to manage their budgets. 
     Additional counseling and management support may be provided 
     at the request of the participant.
       ``(E) The State will provide to the Secretary an annual 
     report on the number of individuals served and total 
     expenditures on their behalf in the aggregate. The State 
     shall also provide an evaluation of overall impact on the 
     health and welfare of participating individuals compared to 
     non-participants every three years.
       ``(3) A State may provide self-directed personal assistance 
     services under the State plan without regard to the 
     requirements of section 1902(a)(1) and may limit the 
     population eligible to receive these services and limit the 
     number of persons served without regard to section 
     1902(a)(10)(B).
       ``(4)(A) For purposes of this subsection, the term `self-
     directed personal assistance services' means personal care 
     and related services, or

[[Page H12673]]

     home and community-based services otherwise available under 
     the plan under this title or subsection (c), that are 
     provided to an eligible participant under a self-directed 
     personal assistance services program under this section, 
     under which individuals, within an approved self-directed 
     services plan and budget, purchase personal assistance and 
     related services, and permits participants to hire, fire, 
     supervise, and manage the individuals providing such 
     services.
       ``(B) At the election of the State--
       ``(i) a participant may choose to use any individual 
     capable of providing the assigned tasks including legally 
     liable relatives as paid providers of the services; and
       ``(ii) the individual may use the individual's budget to 
     acquire items that increase independence or substitute (such 
     as a microwave oven or an accessibility ramp) for human 
     assistance, to the extent that expenditures would otherwise 
     be made for the human assistance.
       ``(5) For purpose of this section, the term `approved self-
     directed services plan and budget' means, with respect to a 
     participant, the establishment of a plan and budget for the 
     provision of self-directed personal assistance services, 
     consistent with the following requirements:
       ``(A) Self-direction.--The participant (or in the case of a 
     participant who is a minor child, the participant's parent or 
     guardian, or in the case of an incapacitated adult, another 
     individual recognized by State law to act on behalf of the 
     participant) exercises choice and control over the budget, 
     planning, and purchase of self-directed personal assistance 
     services, including the amount, duration, scope, provider, 
     and location of service provision.
       ``(B) Assessment of needs.--There is an assessment of the 
     needs, strengths, and preferences of the participants for 
     such services.
       ``(C) Service plan.--A plan for such services (and supports 
     for such services) for the participant has been developed and 
     approved by the State based on such assessment through a 
     person-centered process that--
       ``(i) builds upon the participant's capacity to engage in 
     activities that promote community life and that respects the 
     participant's preferences, choices, and abilities; and
       ``(ii) involves families, friends, and professionals in the 
     planning or delivery of services or supports as desired or 
     required by the participant.
       ``(D) Service budget.--A budget for such services and 
     supports for the participant has been developed and approved 
     by the State based on such assessment and plan and on a 
     methodology that uses valid, reliable cost data, is open to 
     public inspection, and includes a calculation of the expected 
     cost of such services if those services were not self-
     directed. The budget may not restrict access to other 
     medically necessary care and services furnished under the 
     plan and approved by the State but not included in the 
     budget.
       ``(E) Application of quality assurance and risk 
     management.--There are appropriate quality assurance and risk 
     management techniques used in establishing and implementing 
     such plan and budget that recognize the roles and 
     responsibilities in obtaining services in a self-directed 
     manner and assure the appropriateness of such plan and budget 
     based upon the participant's resources and capabilities.
       ``(6) A State may employ a financial management entity to 
     make payments to providers, track costs, and make reports 
     under the program. Payment for the activities of the 
     financial management entity shall be at the administrative 
     rate established in section 1903(a).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to services furnished on or after January 1, 
     2007.
                           Subtitle B--SCHIP

     SEC. 6101. ADDITIONAL ALLOTMENTS TO ELIMINATE FISCAL YEAR 
                   2006 FUNDING SHORTFALLS.

       (a) In General.--Section 2104 of the Social Security Act 
     (42 U.S.C. 1397dd) is amended by inserting after subsection 
     (c) the following:
       ``(d) Additional Allotments To Eliminate Funding 
     Shortfalls.--
       ``(1) Appropriation; allotment authority.--For the purpose 
     of providing additional allotments to shortfall States 
     described in paragraph (2), there is appropriated, out of any 
     money in the Treasury not otherwise appropriated, 
     $283,000,000 for fiscal year 2006.
       ``(2) Shortfall states described.--For purposes of 
     paragraph (1), a shortfall State described in this paragraph 
     is a State with a State child health plan approved under this 
     title for which the Secretary estimates, on the basis of the 
     most recent data available to the Secretary as of December 
     16, 2005, that the projected expenditures under such plan for 
     such State for fiscal year 2006 will exceed the sum of--
       ``(A) the amount of the State's allotments for each of 
     fiscal years 2004 and 2005 that will not be expended by the 
     end of fiscal year 2005;
       ``(B) the amount, if any, that is to be redistributed to 
     the State during fiscal year 2006 in accordance with 
     subsection (f); and
       ``(C) the amount of the State's allotment for fiscal year 
     2006.
       ``(3) Allotments.--In addition to the allotments provided 
     under subsections (b) and (c), subject to paragraph (4), of 
     the amount available for the additional allotments under 
     paragraph (1) for fiscal year 2006, the Secretary shall 
     allot--
       ``(A) to each shortfall State described in paragraph (2) 
     such amount as the Secretary determines will eliminate the 
     estimated shortfall described in such paragraph for the 
     State; and
       ``(B) to each commonwealth or territory described in 
     subsection (c)(3), the same proportion as the proportion of 
     the commonwealth's or territory's allotment under subsection 
     (c) (determined without regard to subsection (f)) to 1.05 
     percent of the amount appropriated under paragraph (1).
       ``(4) Use of additional allotment.--Additional allotments 
     provided under this subsection are only available for amounts 
     expended under a State plan approved under this title for 
     child health assistance for targeted low-income children.
       ``(5) 1-year availability; no redistribution of unexpended 
     additional allotments.--Notwithstanding subsections (e) and 
     (f), amounts allotted to a State pursuant to this subsection 
     for fiscal year 2006 shall only remain available for 
     expenditure by the State through September 30, 2006. Any 
     amounts of such allotments that remain unexpended as of such 
     date shall not be subject to redistribution under subsection 
     (f) and shall revert to the Treasury on October 1, 2006.''.
       (b) Conforming Amendments.--Section 2104 of the Social 
     Security Act (42 U.S.C. 1397dd) is amended--
       (1) in subsection (a), by inserting ``subject to subsection 
     (d),'' after ``under this section,'';
       (2) in subsection (b)(1), by inserting ``and subsection 
     (d)'' after ``Subject to paragraph (4)''; and
       (3) in subsection (c)(1), by inserting ``subject to 
     subsection (d),'' after ``for a fiscal year,''.
       (c) Effective Date.--The amendments made by this section 
     apply to items and services furnished on or after October 1, 
     2005, without regard to whether or not regulations 
     implementing such amendments have been issued.

     SEC. 6102. PROHIBITION AGAINST COVERING NONPREGNANT CHILDLESS 
                   ADULTS WITH SCHIP FUNDS.

       (a) Prohibition on Use of SCHIP Funds.--Section 2107 of the 
     Social Security Act (42 U.S.C. 1397gg) is amended by adding 
     at the end the following:
       ``(f) Limitation of Waiver Authority.--Notwithstanding 
     subsection (e)(2)(A) and section 1115(a), the Secretary may 
     not approve a waiver, experimental, pilot, or demonstration 
     project that would allow funds made available under this 
     title to be used to provide child health assistance or other 
     health benefits coverage to a nonpregnant childless adult. 
     For purposes of the preceding sentence, a caretaker relative 
     (as such term is defined for purposes of carrying out section 
     1931) shall not be considered a childless adult.''.
       (b) Conforming Amendments.--Section 2105(c)(1) of such Act 
     (42 U.S.C. 1397ee(c)(1)) is amended--
       (1) by inserting ``and may not include coverage of a 
     nonpregnant childless adult'' after ``section 2101)''; and
       (2) by adding at the end the following: ``For purposes of 
     the preceding sentence, a caretaker relative (as such term is 
     defined for purposes of carrying out section 1931) shall not 
     be considered a childless adult.''.
       (c) Rule of Construction.--Nothing in this section or the 
     amendments made by this section shall be construed to--
       (1) authorize the waiver of any provision of title XIX or 
     XXI of the Social Security Act (42 U.S.C. 1396 et seq., 
     1397aa et seq.) that is not otherwise authorized to be waived 
     under such titles or under title XI of such Act (42 U.S.C. 
     1301 et seq.) as of the date of enactment of this Act;
       (2) imply congressional approval of any waiver, 
     experimental, pilot, or demonstration project affecting funds 
     made available under the State children's health insurance 
     program under title XXI of the Social Security Act (42 U.S.C. 
     1397aa et seq.) or any amendment to such a waiver or project 
     that has been approved as of such date of enactment; or
       (3) apply to any waiver, experimental, pilot, or 
     demonstration project that would allow funds made available 
     under title XXI of the Social Security Act (42 U.S.C. 1397aa 
     et seq.) to be used to provide child health assistance or 
     other health benefits coverage to a nonpregnant childless 
     adult that is approved before the date of enactment of this 
     Act or to any extension, renewal, or amendment of such a 
     waiver or project that is approved on or after such date of 
     enactment.
       (d) Effective Date.--This section and the amendments made 
     by this section shall take effect as if enacted on October 1, 
     2005, and shall apply to any waiver, experimental, pilot, or 
     demonstration project that is approved on or after that date.

     SEC. 6103. CONTINUED AUTHORITY FOR QUALIFYING STATES TO USE 
                   CERTAIN FUNDS FOR MEDICAID EXPENDITURES.

       (a) In General.--Section 2105(g)(1)(A) of the Social 
     Security Act (42 U.S.C. 1397ee(g)(1)(A)) is amended by 
     striking ``or 2001'' and inserting ``2001, 2004, or 2005''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to expenditures made under title XIX of the 
     Social Security Act (42 U.S.C. 1396 et seq.) on or after 
     October 1, 2005.
                       Subtitle C--Katrina Relief

     SEC. 6201. ADDITIONAL FEDERAL PAYMENTS UNDER HURRICANE-
                   RELATED MULTI-STATE SECTION 1115 
                   DEMONSTRATIONS.

       (a) In General.--The Secretary of Health and Human Services 
     shall pay to each eligible State, from amounts appropriated 
     pursuant to subsection (e), amounts for the following 
     purposes:
       (1) Under the authority of an approved Multi-State Section 
     1115 Demonstration Project (in this section referred to as an 
     ``section 1115 project'')--
       (A) with respect to evacuees receiving health care under 
     such project, for the non-Federal share of expenditures:
       (i) for medical assistance furnished under title XIX of the 
     Social Security Act, and

[[Page H12674]]

       (ii) for child health assistance furnished under title XXI 
     of such Act;
       (B) with respect to evacuees who do not have other coverage 
     for such assistance through insurance, including (but not 
     limited to) private insurance, under title XIX or title XXI 
     of the Social Security Act, or under State-funded health 
     insurance programs, for the total uncompensated care costs 
     incurred for medically necessary services and supplies or 
     premium assistance for such persons, and for those evacuees 
     receiving medical assistance under the project for the total 
     uncompensated care costs incurred for medically necessary 
     services and supplies beyond those included as medical 
     assistance or child health assistance under the State's 
     approved plan under title XIX or title XXI of the Social 
     Security Act;
       (C) with respect to affected individuals receiving health 
     care under such project for the non-Federal share of the 
     following expenditures:
       (i) for medical assistance furnished under title XIX of the 
     Social Security Act, and
       (ii) for child health assistance furnished under title XXI 
     of such Act; and
       (D) with respect to affected individuals who do not have 
     other coverage for such assistance through insurance, 
     including (but not limited to) private insurance, under title 
     XIX or title XXI of the Social Security Act, or under State-
     funded health insurance programs, for the total uncompensated 
     care costs incurred for medically necessary services and 
     supplies or premium assistance for such persons, and for 
     those affected individuals receiving medical assistance under 
     the project for the total uncompensated care costs incurred 
     for medically necessary services and supplies beyond those 
     included as medical assistance or child health assistance 
     under the State's approved plan under title XIX or title XXI 
     of the Social Security Act.
       (2) For reimbursement of the reasonable administrative 
     costs related to subparagraphs (A) through (D) of paragraph 
     (1) as determined by the Secretary.
       (3) Only with respect to affected counties or parishes, for 
     reimbursement with respect to individuals receiving medical 
     assistance under existing State plans approved by the 
     Secretary of Health and Human Services for the following non-
     Federal share of expenditures:
       (A) For medical assistance furnished under title XIX of the 
     Social Security Act.
       (B) For child health assistance furnished under title XXI 
     of such Act.
       (4) For other purposes, if approved by the Secretary under 
     the Secretary's authority, to restore access to health care 
     in impacted communities.
       (b) Definitions.--For purposes of this section:
       (1) The term ``affected individual'' means an individual 
     who resided in an individual assistance designation county or 
     parish pursuant to section 408 of the Robert T. Stafford 
     Disaster Relief and Emergency Assistance Act, as declared by 
     the President as a result of Hurricane Katrina and continues 
     to reside in the same State that such county or parish is 
     located in.
       (2) The term ``affected counties or parishes'' means a 
     county or parish described in paragraph (1).
       (3) The term ``evacuee'' means an affected individual who 
     has been displaced to another State.
       (4) The term ``eligible State'' means a State that has 
     provided care to affected individuals or evacuees under a 
     section 1115 project.
       (c) Application to Matching Requirements.--The non-Federal 
     share paid under this section shall not be regarded as 
     Federal funds for purposes of Medicaid matching requirements, 
     the effect of which is to provide fiscal relief to the State 
     in which the Medicaid eligible individual originally resided.
       (d) Time Limits on Payments.--
       (1) No payments shall be made by the Secretary under 
     subsection (a)(1)(A) or (a)(1)(C), for costs of health care 
     provided to an eligible evacuee or affected individual for 
     services for such individual incurred after June 30, 2006.
       (2) No payments shall be made by the Secretary under 
     subsection (a)(1)(B) or (a)(1)(D) for costs of health care 
     incurred after January 31, 2006.
       (3) No payments may be made under subsection (a)(1)(B) or 
     (a)(1)(D) for an item or service that an evacuee or an 
     affected individual has received from an individual or 
     organization as part of a public or private hurricane relief 
     effort.
       (e) Appropriations.--For the purpose of providing funds for 
     payments under this section, in addition to any funds made 
     available for the National Disaster Medical System under the 
     Department of Homeland Security for health care costs related 
     to Hurricane Katrina, including under a section 1115 project, 
     there is appropriated out of any money in the Treasury not 
     otherwise appropriated, $2,000,000,000, to remain available 
     to the Secretary until expended. The total amount of payments 
     made under subsection (a) may not exceed the total amount 
     appropriated under this subsection.

     SEC. 6202. STATE HIGH RISK HEALTH INSURANCE POOL FUNDING.

       (a) In General.--There are hereby authorized and 
     appropriated for fiscal year 2006--
       (1) $75,000,000 for grants under subsection (b)(1) of 
     section 2745 of the Public Health Service Act (42 U.S.C. 
     300gg-45); and
       (2) $15,000,000 for grants under subsection (a) of such 
     section.
       (b) Treatment.--The amount appropriated under--
       (1) paragraph (1) shall be treated as if it had been 
     appropriated under subsection (c)(2) of such section; and
       (2) paragraph (2) shall be treated as if it had been 
     appropriated under subsection (c)(1) of such section.
       (c) References.--Effective upon the enactment of the State 
     High Risk Pool Funding Extension Act of 2005--
       (1) subsection (a)(1) shall be applied by substituting 
     ``subsections (b)(2) and (c)(3)'' for ``subsection (b)(1)'';
       (2) subsection (b)(1) shall be applied by substituting 
     ``(d)(1)(B)'' for ``(c)(2)''; and
       (3) subsection (b)(2) shall be applied by substituting 
     ``(d)(1)(A)'' for ``(c)(1)''.

     SEC. 6203. IMPLEMENTATION FUNDING.

       For purposes of implementing the provisions of, and 
     amendments made by, title V of this Act and this title--
       (1) the Secretary of Health and Human Services shall 
     provide for the transfer, in appropriate part from the 
     Federal Hospital Insurance Trust Fund established under 
     section 1817 of the Social Security Act (42 U.S.C. 1395i) and 
     the Federal Supplementary Medical Insurance Trust Fund 
     established under section 1841 of such Act (42 U.S.C. 1395t), 
     of $30,000,000 to the Centers for Medicare & Medicaid 
     Services Program Management Account for fiscal year 2006; and
       (2) out of any funds in the Treasury not otherwise 
     appropriated, there are appropriated to such Secretary for 
     the Centers for Medicare & Medicaid Services Program 
     Management Account, $30,000,000 for fiscal year 2006.
            TITLE VII--HUMAN RESOURCES AND OTHER PROVISIONS

     SEC. 7002. REFERENCES.

       Except as otherwise expressly provided, wherever in this 
     title an amendment or repeal is expressed in terms of an 
     amendment to, or repeal of, a section or other provision, the 
     amendment or repeal shall be considered to be made to a 
     section or other provision of the Social Security Act.
                            Subtitle A--TANF

     SEC. 7101. TEMPORARY ASSISTANCE FOR NEEDY FAMILIES AND 
                   RELATED PROGRAMS FUNDING THROUGH SEPTEMBER 30, 
                   2010.

       (a) In General.--Activities authorized by part A of title 
     IV and section 1108(b) of the Social Security Act (adjusted, 
     as applicable, by or under this subtitle, the amendments made 
     by this subtitle, and the TANF Emergency Response and 
     Recovery Act of 2005) shall continue through September 30, 
     2010, in the manner authorized for fiscal year 2004, and out 
     of any money in the Treasury of the United States not 
     otherwise appropriated, there are hereby appropriated such 
     sums as may be necessary for such purpose. Grants and 
     payments may be made pursuant to this authority on a 
     quarterly basis through fiscal year 2010 at the level 
     provided for such activities for the corresponding quarter of 
     fiscal year 2004 (or, as applicable, at such greater level as 
     may result from the application of this subtitle, the 
     amendments made by this subtitle, and the TANF Emergency 
     Response and Recovery Act of 2005), except that in the case 
     of section 403(a)(3) of the Social Security Act, grants and 
     payments may be made pursuant to this authority only through 
     fiscal year 2008 and in the case of section 403(a)(4) of the 
     Social Security Act, no grants shall be made for any fiscal 
     year occurring after fiscal year 2005.
       (b) Conforming Amendments.--Part A of title IV (42 U.S.C. 
     601 et seq.) is amended--
       (1) in section 403(a)(3)(H)(ii), by striking ``December, 
     31, 2005'' and inserting ``fiscal year 2008'';
       (2) in section 403(b)(3)(C)(ii), by striking ``2006'' and 
     inserting ``2010''; and
       (3) in section 409(a)(7)--
       (A) in subparagraph (A), by striking ``or 2007'' and 
     inserting ``2007, 2008, 2009, 2010, or 2011''; and
       (B) in subparagraph (B)(ii), by striking ``2006'' and 
     inserting ``2010''.
       (c) Extension of the National Random Sample Study of Child 
     Welfare Through September 30, 2010.--Activities authorized by 
     section 429A of the Social Security Act shall continue 
     through September 30, 2010, in the manner authorized for 
     fiscal year 2004, and out of any money in the Treasury of the 
     United States not otherwise appropriated, there are hereby 
     appropriated such sums as may be necessary for such purpose. 
     Grants and payments may be made pursuant to this authority on 
     a quarterly basis through fiscal year 2010 at the level 
     provided for such activities for the corresponding quarter of 
     fiscal year 2004.

     SEC. 7102. IMPROVED CALCULATION OF WORK PARTICIPATION RATES 
                   AND PROGRAM INTEGRITY.

       (a) Recalibration of Caseload Reduction Credit.--
       (1) In general.--Section 407(b)(3)(A) (42 U.S.C. 
     607(b)(3)(A)) is amended--
       (A) in clause (i), by inserting ``or any other State 
     program funded with qualified State expenditures (as defined 
     in section 409(a)(7)(B)(i))'' after ``this part'' ; and
       (B) by striking clause (ii) and inserting the following:
       ``(ii) the average monthly number of families that received 
     assistance under any State program referred to in clause (i) 
     during fiscal year 2005.''.
       (2) Conforming amendment.--Section 407(b)(3)(B) (42 U.S.C. 
     607(b)(3)(B)) is amended by striking ``and eligibility 
     criteria'' and all that follows through the close parenthesis 
     and inserting ``and the eligibility criteria in effect during 
     fiscal year 2005''.
       (b) Inclusion of Families Receiving Assistance Under 
     Separate State Programs in Calculation of Participation 
     Rates.--
       (1) Section 407 (42 U.S.C. 607) is amended in each of 
     subsections (a)(1), (a)(2), (b)(1)(B)(i), (c)(2)(A)(i), 
     (e)(1), and (e)(2), by inserting ``or any other State program 
     funded with qualified State expenditures (as defined in 
     section 409(a)(7)(B)(i))'' after ``this part''.
       (2) Section 411(a)(1) (42 U.S.C. 611(a)(1)) is amended--
       (A) in subparagraph (A), by inserting ``or any other State 
     program funded with qualified State expenditures (as defined 
     in section 409(a)(7)(B)(i))'' before the colon; and

[[Page H12675]]

       (B) in subparagraph (B)(ii), by inserting ``and any other 
     State programs funded with qualified State expenditures (as 
     defined in section 409(a)(7)(B)(i))'' after ``this part''.
       (c) Improved Verification and Oversight of Work 
     Participation.--
       (1) In general.--Section 407(i) (42 U.S.C. 607(i)) is 
     amended to read as follows:
       ``(i) Verification of Work and Work-Eligible Individuals in 
     Order to Implement Reforms.--
       ``(1) Secretarial direction and oversight.--
       ``(A) Regulations for determining whether activities may be 
     counted as `work activities', how to count and verify 
     reported hours of work, and determining who is a work-
     eligible individual.--
       ``(i) In general.--Not later than June 30, 2006, the 
     Secretary shall promulgate regulations to ensure consistent 
     measurement of work participation rates under State programs 
     funded under this part and State programs funded with 
     qualified State expenditures (as defined in section 
     409(a)(7)(B)(i)), which shall include information with 
     respect to--

       ``(I) determining whether an activity of a recipient of 
     assistance may be treated as a work activity under subsection 
     (d);
       ``(II) uniform methods for reporting hours of work by a 
     recipient of assistance;
       ``(III) the type of documentation needed to verify reported 
     hours of work by a recipient of assistance; and
       ``(IV) the circumstances under which a parent who resides 
     with a child who is a recipient of assistance should be 
     included in the work participation rates.

       ``(ii) Issuance of regulations on an interim final basis.--
     The regulations referred to in clause (i) may be effective 
     and final immediately on an interim basis as of the date of 
     publication of the regulations. If the Secretary provides for 
     an interim final regulation, the Secretary shall provide for 
     a period of public comment on the regulation after the date 
     of publication. The Secretary may change or revise the 
     regulation after the public comment period.
       ``(B) Oversight of state procedures.--The Secretary shall 
     review the State procedures established in accordance with 
     paragraph (2) to ensure that such procedures are consistent 
     with the regulations promulgated under subparagraph (A) and 
     are adequate to ensure an accurate measurement of work 
     participation under the State programs funded under this part 
     and any other State programs funded with qualified State 
     expenditures (as so defined).
       ``(2) Requirement for states to establish and maintain work 
     participation verification procedures.--Not later than 
     September 30, 2006, a State to which a grant is made under 
     section 403 shall establish procedures for determining, with 
     respect to recipients of assistance under the State program 
     funded under this part or under any State programs funded 
     with qualified State expenditures (as so defined), whether 
     activities may be counted as work activities, how to count 
     and verify reported hours of work, and who is a work-eligible 
     individual, in accordance with the regulations promulgated 
     pursuant to paragraph (1)(A)(i) and shall establish internal 
     controls to ensure compliance with the procedures.''.
       (2) State penalty for failure to establish or comply with 
     work participation verification procedures.--Section 409(a) 
     (42 U.S.C. 609(a)) is amended by adding at the end the 
     following:
       ``(15) Penalty for failure to establish or comply with work 
     participation verification procedures.--
       ``(A) In general.--If the Secretary determines that a State 
     to which a grant is made under section 403 in a fiscal year 
     has violated section 407(i)(2) during the fiscal year, the 
     Secretary shall reduce the grant payable to the State under 
     section 403(a)(1) for the immediately succeeding fiscal year 
     by an amount equal to not less than 1 percent and not more 
     than 5 percent of the State family assistance grant.
       ``(B) Penalty based on severity of failure.--The Secretary 
     shall impose reductions under subparagraph (A) with respect 
     to a fiscal year based on the degree of noncompliance.''.
       (d) Effective Date.--The amendments made by subsections (a) 
     and (b) shall take effect on October 1, 2006.

     SEC. 7103. GRANTS FOR HEALTHY MARRIAGE PROMOTION AND 
                   RESPONSIBLE FATHERHOOD.

       (a) Healthy Marriage and Family Funds.--Section 403(a)(2) 
     (42 U.S.C. 603(a)(2)) is amended to read as follows:
       ``(2) Healthy marriage promotion and responsible fatherhood 
     grants.--
       ``(A) In general.--
       ``(i) Use of funds.--Subject to subparagraphs (B) and (C), 
     the Secretary may use the funds made available under 
     subparagraph (D) for the purpose of conducting and supporting 
     research and demonstration projects by public or private 
     entities, and providing technical assistance to States, 
     Indian tribes and tribal organizations, and such other 
     entities as the Secretary may specify that are receiving a 
     grant under another provision of this part.
       ``(ii) Limitations.--The Secretary may not award funds made 
     available under this paragraph on a noncompetitive basis, and 
     may not provide any such funds to an entity for the purpose 
     of carrying out healthy marriage promotion activities or for 
     the purpose of carrying out activities promoting responsible 
     fatherhood unless the entity has submitted to the Secretary 
     an application which--

       ``(I) describes--

       ``(aa) how the programs or activities proposed in the 
     application will address, as appropriate, issues of domestic 
     violence; and
       ``(bb) what the applicant will do, to the extent relevant, 
     to ensure that participation in the programs or activities is 
     voluntary, and to inform potential participants that their 
     participation is voluntary; and

       ``(II) contains a commitment by the entity--

       ``(aa) to not use the funds for any other purpose; and
       ``(bb) to consult with experts in domestic violence or 
     relevant community domestic violence coalitions in developing 
     the programs and activities.
       ``(iii) Healthy marriage promotion activities.--In clause 
     (ii), the term `healthy marriage promotion activities' means 
     the following:

       ``(I) Public advertising campaigns on the value of marriage 
     and the skills needed to increase marital stability and 
     health.
       ``(II) Education in high schools on the value of marriage, 
     relationship skills, and budgeting.
       ``(III) Marriage education, marriage skills, and 
     relationship skills programs, that may include parenting 
     skills, financial management, conflict resolution, and job 
     and career advancement, for non-married pregnant women and 
     non-married expectant fathers.
       ``(IV) Pre-marital education and marriage skills training 
     for engaged couples and for couples or individuals interested 
     in marriage.
       ``(V) Marriage enhancement and marriage skills training 
     programs for married couples.
       ``(VI) Divorce reduction programs that teach relationship 
     skills.
       ``(VII) Marriage mentoring programs which use married 
     couples as role models and mentors in at-risk communities.
       ``(VIII) Programs to reduce the disincentives to marriage 
     in means-tested aid programs, if offered in conjunction with 
     any activity described in this subparagraph.

       ``(B) Limitation on use of funds for demonstration projects 
     for coordination of provision of child welfare and tanf 
     services to tribal families at risk of child abuse or 
     neglect.--
       ``(i) In general.--Of the amounts made available under 
     subparagraph (D) for a fiscal year, the Secretary may not 
     award more than $2,000,000 on a competitive basis to fund 
     demonstration projects designed to test the effectiveness of 
     tribal governments or tribal consortia in coordinating the 
     provision to tribal families at risk of child abuse or 
     neglect of child welfare services and services under tribal 
     programs funded under this part.
       ``(ii) Limitation on use of funds.--A grant made pursuant 
     to clause (i) to such a project shall not be used for any 
     purpose other than--

       ``(I) to improve case management for families eligible for 
     assistance from such a tribal program;
       ``(II) for supportive services and assistance to tribal 
     children in out-of-home placements and the tribal families 
     caring for such children, including families who adopt such 
     children; and

       ``(III) for prevention services and assistance to tribal 
     families at risk of child abuse and neglect.

       ``(iii) Reports.--The Secretary may require a recipient of 
     funds awarded under this subparagraph to provide the 
     Secretary with such information as the Secretary deems 
     relevant to enable the Secretary to facilitate and oversee 
     the administration of any project for which funds are 
     provided under this subparagraph.
       ``(C) Limitation on use of funds for activities promoting 
     responsible fatherhood.--
       ``(i) In general.--Of the amounts made available under 
     subparagraph (D) for a fiscal year, the Secretary may not 
     award more than $50,000,000 on a competitive basis to States, 
     territories, Indian tribes and tribal organizations, and 
     public and nonprofit community entities, including religious 
     organizations, for activities promoting responsible 
     fatherhood.
       ``(ii) Activities promoting responsible fatherhood.--In 
     this paragraph, the term `activities promoting responsible 
     fatherhood' means the following:

       ``(I) Activities to promote marriage or sustain marriage 
     through activities such as counseling, mentoring, 
     disseminating information about the benefits of marriage and 
     2-parent involvement for children, enhancing relationship 
     skills, education regarding how to control aggressive 
     behavior, disseminating information on the causes of domestic 
     violence and child abuse, marriage preparation programs, 
     premarital counseling, marital inventories, skills-based 
     marriage education, financial planning seminars, including 
     improving a family's ability to effectively manage family 
     business affairs by means such as education, counseling, or 
     mentoring on matters related to family finances, including 
     household management, budgeting, banking, and handling of 
     financial transactions and home maintenance, and divorce 
     education and reduction programs, including mediation and 
     counseling.
       ``(II) Activities to promote responsible parenting through 
     activities such as counseling, mentoring, and mediation, 
     disseminating information about good parenting practices, 
     skills-based parenting enducation, encouraging child support 
     payments, and other methods.
       ``(III) Activities to foster economic stability by helping 
     fathers improve their economic status by providing activities 
     such as work first services, job search, job training, 
     subsidized employment, job retention, job enhancement, and 
     encouraging education, including career-advancing education, 
     dissemination of employment materials, coordination with 
     existing employment services such as welfare-to-work 
     programs, referrals to local employment training initiatives, 
     and other methods.
       ``(IV) Activities to promote responsible fatherhood that 
     are conducted through a contract with a nationally 
     recognized, nonprofit fatherhood promotion organization, such 
     as the development, promotion, and distribution of a media 
     campaign to encourage the appropriate involvement of parents 
     in the life of any child and specifically the issue of 
     responsible fatherhood, and the development of a national 
     clearinghouse to assist States and communities in efforts to 
     promote and support marriage and responsible fatherhood.

[[Page H12676]]

       ``(D) Appropriation.--Out of any money in the Treasury of 
     the United States not otherwise appropriated, there are 
     appropriated $150,000,000 for each of fiscal years 2006 
     through 2010, for expenditure in accordance with this 
     paragraph.''.
       (b) Counting of Spending on Certain Pro-Family 
     Activities.--Section 409(a)(7)(B)(i) (42 U.S.C. 
     609(a)(7)(B)(i)) is amended by adding at the end the 
     following:

       ``(V) Counting of spending on certain pro-family 
     activities.--The term `qualified State expenditures' includes 
     the total expenditures by the State during the fiscal year 
     under all State programs for a purpose described in paragraph 
     (3) or (4) of section 401(a).''.

                         Subtitle B--Child Care

     SEC. 7201. ENTITLEMENT FUNDING.

       Section 418(a)(3) (42 U.S.C. 618(a)(3)) is amended--
       (1) by striking ``and'' at the end of subparagraph (E);
       (2) by striking the period at the end of subparagraph (F) 
     and inserting a semicolon; and
       (3) by adding at the end the following:
       ``(G) $2,917,000,000 for each of fiscal years 2006 through 
     2010.''.
                       Subtitle C--Child Support

     SEC. 7301. ASSIGNMENT AND DISTRIBUTION OF CHILD SUPPORT.

       (a) Modification of Rule Requiring Assignment of Support 
     Rights as a Condition of Receiving TANF.--Section 408(a)(3) 
     (42 U.S.C. 608(a)(3)) is amended to read as follows:
       ``(3) No assistance for families not assigning certain 
     support rights to the state.--A State to which a grant is 
     made under section 403 shall require, as a condition of 
     paying assistance to a family under the State program funded 
     under this part, that a member of the family assign to the 
     State any right the family member may have (on behalf of the 
     family member or of any other person for whom the family 
     member has applied for or is receiving such assistance) to 
     support from any other person, not exceeding the total amount 
     of assistance so paid to the family, which accrues during the 
     period that the family receives assistance under the 
     program.''.
       (b) Increasing Child Support Payments to Families and 
     Simplifying Child Support Distribution Rules.--
       (1) Distribution rules.--
       (A) In general.--Section 457(a) (42 U.S.C. 657(a)) is 
     amended to read as follows:
       ``(a) In General.--Subject to subsections (d) and (e), the 
     amounts collected on behalf of a family as support by a State 
     pursuant to a plan approved under this part shall be 
     distributed as follows:
       ``(1) Families receiving assistance.--In the case of a 
     family receiving assistance from the State, the State shall--
       ``(A) pay to the Federal Government the Federal share of 
     the amount collected, subject to paragraph (3)(A);
       ``(B) retain, or pay to the family, the State share of the 
     amount collected, subject to paragraph (3)(B); and
       ``(C) pay to the family any remaining amount.
       ``(2) Families that formerly received assistance.--In the 
     case of a family that formerly received assistance from the 
     State:
       ``(A) Current support.--To the extent that the amount 
     collected does not exceed the current support amount, the 
     State shall pay the amount to the family.
       ``(B) Arrearages.--Except as otherwise provided in an 
     election made under section 454(34), to the extent that the 
     amount collected exceeds the current support amount, the 
     State--
       ``(i) shall first pay to the family the excess amount, to 
     the extent necessary to satisfy support arrearages not 
     assigned pursuant to section 408(a)(3);
       ``(ii) if the amount collected exceeds the amount required 
     to be paid to the family under clause (i), shall--

       ``(I) pay to the Federal Government the Federal share of 
     the excess amount described in this clause, subject to 
     paragraph (3)(A); and
       ``(II) retain, or pay to the family, the State share of the 
     excess amount described in this clause, subject to paragraph 
     (3)(B); and

       ``(iii) shall pay to the family any remaining amount.
       ``(3) Limitations.--
       ``(A) Federal reimbursements.--The total of the amounts 
     paid by the State to the Federal Government under paragraphs 
     (1) and (2) of this subsection with respect to a family shall 
     not exceed the Federal share of the amount assigned with 
     respect to the family pursuant to section 408(a)(3).
       ``(B) State reimbursements.--The total of the amounts 
     retained by the State under paragraphs (1) and (2) of this 
     subsection with respect to a family shall not exceed the 
     State share of the amount assigned with respect to the family 
     pursuant to section 408(a)(3).
       ``(4) Families that never received assistance.--In the case 
     of any other family, the State shall distribute to the family 
     the portion of the amount so collected that remains after 
     withholding any fee pursuant to section 454(6)(B)(ii).
       ``(5) Families under certain agreements.--Notwithstanding 
     paragraphs (1) through (3), in the case of an amount 
     collected for a family in accordance with a cooperative 
     agreement under section 454(33), the State shall distribute 
     the amount collected pursuant to the terms of the 
     agreement.''.
       (B) State option to pass through additional support with 
     federal financial participation beginning with fiscal year 
     2009.--
       (i) In general.--Section 457(a) (42 U.S.C. 657(a)) is 
     amended by adding at the end the following:
       ``(7) State option to pass through additional support with 
     federal financial participation.--
       ``(A) Families that formerly received assistance.--
     Notwithstanding paragraph (2), a State shall not be required 
     to pay to the Federal Government the Federal share of an 
     amount collected on behalf of a family that formerly received 
     assistance from the State to the extent that the State pays 
     the amount to the family.
       ``(B) Families that currently receive assistance.--
       ``(i) In general.--Notwithstanding paragraph (1), in the 
     case of a family that receives assistance from the State, a 
     State shall not be required to pay to the Federal Government 
     the Federal share of the excepted portion (as defined in 
     clause (ii)) of any amount collected on behalf of such family 
     during a month to the extent that--

       ``(I) the State pays the excepted portion to the family; 
     and
       ``(II) the excepted portion is disregarded in determining 
     the amount and type of assistance provided to the family 
     under such program.

       ``(ii) Excepted portion defined.--For purposes of this 
     subparagraph, the term ``excepted portion'' means that 
     portion of the amount collected on behalf of a family during 
     a month that does not exceed $100 per month, or in the case 
     of a family that includes 2 or more children, that does not 
     exceed an amount established by the State that is not more 
     than $200 per month.''.
       (ii) Effective date.--The amendment made by clause (i) 
     shall take effect on October 1, 2008.
       (iii) Redesignation.--Effective October 1, 2009, paragraph 
     (7) of section 457(a) of the Social Security Act (as added by 
     clause (i)) is redesignated as paragraph (6).
       (C) State plan to include election as to which rules to 
     apply in distributing child support arrearages collected on 
     behalf of families formerly receiving assistance.--Section 
     454 (42 U.S.C. 654) is amended--
       (i) by striking ``and'' at the end of paragraph (32);
       (ii) by striking the period at the end of paragraph (33) 
     and inserting ``; and''; and
       (iii) by inserting after paragraph (33) the following:
       ``(34) include an election by the State to apply section 
     457(a)(2)(B) of this Act or former section 457(a)(2)(B) of 
     this Act (as in effect for the State immediately before the 
     date this paragraph first applies to the State) to the 
     distribution of the amounts which are the subject of such 
     sections and, for so long as the State elects to so apply 
     such former section, the amendments made by subsection (b)(1) 
     of section 7301 of the Deficit Reduction Act of 2005 shall 
     not apply with respect to the State, notwithstanding 
     subsection (e) of such section 7301.''.
       (2) Current support amount defined.--Section 457(c) (42 
     U.S.C. 657(c)) is amended by adding at the end the following:
       ``(5) Current support amount.--The term `current support 
     amount' means, with respect to amounts collected as support 
     on behalf of a family, the amount designated as the monthly 
     support obligation of the noncustodial parent in the order 
     requiring the support or calculated by the State based on the 
     order.''.
       (c) State Option to Discontinue Older Support 
     Assignments.--Section 457(b) (42 U.S.C. 657(b)) is amended to 
     read as follows:
       ``(b) Continuation of Assignments.--
       ``(1) State option to discontinue pre-1997 support 
     assignments.--
       ``(A) In general.--Any rights to support obligations 
     assigned to a State as a condition of receiving assistance 
     from the State under part A and in effect on September 30, 
     1997 (or such earlier date on or after August 22, 1996, as 
     the State may choose), may remain assigned after such date.
       ``(B) Distribution of amounts after assignment 
     discontinuation.--If a State chooses to discontinue the 
     assignment of a support obligation described in subparagraph 
     (A), the State may treat amounts collected pursuant to the 
     assignment as if the amounts had never been assigned and may 
     distribute the amounts to the family in accordance with 
     subsection (a)(4).
       ``(2) State option to discontinue post-1997 assignments.--
       ``(A) In general.--Any rights to support obligations 
     accruing before the date on which a family first receives 
     assistance under part A that are assigned to a State under 
     that part and in effect before the implementation date of 
     this section may remain assigned after such date.
       ``(B) Distribution of amounts after assignment 
     discontinuation.--If a State chooses to discontinue the 
     assignment of a support obligation described in subparagraph 
     (A), the State may treat amounts collected pursuant to the 
     assignment as if the amounts had never been assigned and may 
     distribute the amounts to the family in accordance with 
     subsection (a)(4).''.
       (d) Conforming Amendments.--Section 6402(c) of the Internal 
     Revenue Code of 1986 (relating to offset of past-due support 
     against overpayments) is amended--
       (1) in the first sentence, by striking ``the Social 
     Security Act.'' and inserting ``of such Act.''; and
       (2) by striking the third sentence and inserting the 
     following: ``The Secretary shall apply a reduction under this 
     subsection first to an amount certified by the State as past 
     due support under section 464 of the Social Security Act 
     before any other reductions allowed by law.''.
       (e) Effective Date.--
       (1) In general.--Except as otherwise provided in this 
     section, the amendments made by the preceding provisions of 
     this section shall take effect on October 1, 2009, and shall 
     apply to payments under parts A and D of title IV of the 
     Social Security Act for calendar quarters beginning on or 
     after such date, and without regard to whether regulations to 
     implement the amendments (in the case of State programs 
     operated under such part D) are promulgated by such date.

[[Page H12677]]

       (2) State option to accelerate effective date.--
     Notwithstanding paragraph (1), a State may elect to have the 
     amendments made by the preceding provisions of this section 
     apply to the State and to amounts collected by the State (and 
     the payments under parts A and D), on and after such date as 
     the State may select that is not earlier than October 1, 
     2008, and not later than September 30, 2009.
       (f) Use of Tax Refund Intercept Program to Collect Past-Due 
     Child Support on Behalf of Children Who Are Not Minors.--
       (1) In general.--Section 464 (42 U.S.C. 664) is amended--
       (A) in subsection (a)(2)(A), by striking ``(as that term is 
     defined for purposes of this paragraph under subsection 
     (c))''; and
       (B) in subsection (c)--
       (i) in paragraph (1)--

       (I) by striking ``(1) Except as provided in paragraph (2), 
     as used in'' and inserting ``In''; and
       (II) by inserting ``(whether or not a minor)'' after ``a 
     child'' each place it appears; and

       (ii) by striking paragraphs (2) and (3).
       (2) Effective date.--The amendments made by paragraph (1) 
     shall take effect on October 1, 2007.
       (g) State Option to Use Statewide Automated Data Processing 
     and Information Retrieval System for Interstate Cases.--
     Section 466(a)(14)(A)(iii) (42 U.S.C. 666(a)(14)(A)(iii)) is 
     amended by inserting before the semicolon the following: 
     ``(but the assisting State may establish a corresponding case 
     based on such other State's request for assistance)''.

     SEC. 7302. MANDATORY REVIEW AND ADJUSTMENT OF CHILD SUPPORT 
                   ORDERS FOR FAMILIES RECEIVING TANF.

       (a) In General.--Section 466(a)(10)(A)(i) (42 U.S.C. 
     666(a)(10)(A)(i)) is amended--
       (1) by striking ``parent, or,'' and inserting ``parent 
     or''; and
       (2) by striking ``upon the request of the State agency 
     under the State plan or of either parent,''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect on October 1, 2007.

     SEC. 7303. DECREASE IN AMOUNT OF CHILD SUPPORT ARREARAGE 
                   TRIGGERING PASSPORT DENIAL.

       (a) In General.--Section 452(k)(1) (42 U.S.C. 652(k)(1)) is 
     amended by striking ``$5,000'' and inserting ``$2,500''.
       (b) Conforming Amendment.--Section 454(31) (42 U.S.C. 
     654(31)) is amended by striking ``$5,000'' and inserting 
     ``$2,500''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2006.

     SEC. 7304. MAINTENANCE OF TECHNICAL ASSISTANCE FUNDING.

       Section 452(j) (42 U.S.C. 652(j)) is amended by inserting 
     ``or the amount appropriated under this paragraph for fiscal 
     year 2002, whichever is greater'' before ``, which shall be 
     available''.

     SEC. 7305. MAINTENANCE OF FEDERAL PARENT LOCATOR SERVICE 
                   FUNDING.

       Section 453(o) (42 U.S.C. 653(o)) is amended--
       (1) in the first sentence, by inserting ``or the amount 
     appropriated under this paragraph for fiscal year 2002, 
     whichever is greater'' before ``, which shall be available''; 
     and
       (2) in the second sentence, by striking ``for each of 
     fiscal years 1997 through 2001''.

     SEC. 7306. INFORMATION COMPARISONS WITH INSURANCE DATA.

       (a) Duties of the Secretary.--Section 452 (42 U.S.C. 652) 
     is amended by adding at the end the following:
       ``(l) Comparisons With Insurance Information.--
       ``(1) In general.--The Secretary, through the Federal 
     Parent Locator Service, may--
       ``(A) compare information concerning individuals owing 
     past-due support with information maintained by insurers (or 
     their agents) concerning insurance claims, settlements, 
     awards, and payments; and
       ``(B) furnish information resulting from the data matches 
     to the State agencies responsible for collecting child 
     support from the individuals.
       ``(2) Liability.--An insurer (including any agent of an 
     insurer) shall not be liable under any Federal or State law 
     to any person for any disclosure provided for under this 
     subsection, or for any other action taken in good faith in 
     accordance with this subsection.''.
       (b) State Reimbursement of Federal Costs.--Section 
     453(k)(3) (42 U.S.C. 653(k)(3)) is amended by inserting ``or 
     section 452(l)'' after ``pursuant to this section''.

     SEC. 7307. REQUIREMENT THAT STATE CHILD SUPPORT ENFORCEMENT 
                   AGENCIES SEEK MEDICAL SUPPORT FOR CHILDREN FROM 
                   EITHER PARENT.

       (a) State Agencies Required to Seek Medical Support From 
     Either Parent.--
       (1) In general.--Section 466(a)(19)(A) (42 U.S.C. 
     666(a)(19)(A)) is amended by striking ``which include a 
     provision for the health care coverage of the child are 
     enforced'' and inserting ``shall include a provision for 
     medical support for the child to be provided by either or 
     both parents, and shall be enforced''.
       (2) Conforming amendments.--
       (A) Title iv-d.--
       (i) Section 452(f) (42 U.S.C. 652(f)) is amended by 
     striking ``include medical support as part of any child 
     support order and enforce medical support'' and inserting 
     ``enforce medical support included as part of a child support 
     order''.
       (ii) Section 466(a)(19) (42 U.S.C. 666(a)(19)), as amended 
     by paragraph (1) of this subsection, is amended--

       (I) in subparagraph (A)--

       (aa) by striking ``section 401(e)(3)(C)'' and inserting 
     ``section 401(e)''; and
       (bb) by striking ``section 401(f)(5)(C)'' and inserting 
     ``section 401(f)'';

       (II) in subparagraph (B)--

       (aa) by striking ``noncustodial'' each place it appears; 
     and
       (bb) in clause (iii), by striking ``section 466(b)'' and 
     inserting ``subsection (b)''; and

       (III) in subparagraph (C), by striking ``noncustodial'' 
     each place it appears and inserting ``obligated''.

       (B) State or local governmental group health plans.--
     Section 401(e)(2) of the Child Support Performance and 
     Incentive Act of 1998 (29 U.S.C. 1169 note) is amended, in 
     the matter preceding subparagraph (A), by striking ``who is a 
     noncustodial parent of the child''.
       (C) Church plans.--Section 401(f)(5)(C) of the Child 
     Support Performance and Incentive Act of 1998 (29 U.S.C. 1169 
     note) is amended by striking ``noncustodial'' each place it 
     appears.
       (b) Enforcement of Medical Support Requirements.--Section 
     452(f) (42 U.S.C. 652(f)), as amended by subsection 
     (a)(2)(A)(i), is amended by inserting after the first 
     sentence the following: ``A State agency administering the 
     program under this part may enforce medical support against a 
     custodial parent if health care coverage is available to the 
     custodial parent at a reasonable cost, notwithstanding any 
     other provision of this part.''.
       (c) Definition of Medical Support.--Section 452(f) (42 
     U.S.C. 652(f)), as amended by subsections (a)(2)(A)(i) and 
     (b) of this section, is amended by adding at the end the 
     following: ``For purposes of this part, the term `medical 
     support' may include health care coverage, such as coverage 
     under a health insurance plan (including payment of costs of 
     premiums, co-payments, and deductibles) and payment for 
     medical expenses incurred on behalf of a child.''.

     SEC. 7308. REDUCTION OF FEDERAL MATCHING RATE FOR LABORATORY 
                   COSTS INCURRED IN DETERMINING PATERNITY.

       (a) In General.--Section 455(a)(1)(C) (42 U.S.C. 
     655(a)(1)(C)) is amended by striking ``90 percent (rather 
     than the percentage specified in subparagraph (A))'' and 
     inserting ``66 percent''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on October 1, 2006, and shall apply to 
     costs incurred on or after that date.

     SEC. 7309. ENDING FEDERAL MATCHING OF STATE SPENDING OF 
                   FEDERAL INCENTIVE PAYMENTS.

       (a) In General.--Section 455(a)(1) (42 U.S.C. 655(a)(1)) is 
     amended by inserting ``from amounts paid to the State under 
     section 458 or'' before ``to carry out an agreement''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on October 1, 2007.

     SEC. 7310. MANDATORY FEE FOR SUCCESSFUL CHILD SUPPORT 
                   COLLECTION FOR FAMILY THAT HAS NEVER RECEIVED 
                   TANF.

       (a) In General.--Section 454(6)(B) (42 U.S.C. 654(6)(B)) is 
     amended--
       (1) by inserting ``(i)'' after ``(B)'';
       (2) by redesignating clauses (i) and (ii) as subclauses (I) 
     and (II), respectively;
       (3) by adding ``and'' after the semicolon; and
       (4) by adding after and below the end the following new 
     clause:
       ``(ii) in the case of an individual who has never received 
     assistance under a State program funded under part A and for 
     whom the State has collected at least $500 of support, the 
     State shall impose an annual fee of $25 for each case in 
     which services are furnished, which shall be retained by the 
     State from support collected on behalf of the individual (but 
     not from the 1st $500 so collected), paid by the individual 
     applying for the services, recovered from the absent parent, 
     or paid by the State out of its own funds (the payment of 
     which from State funds shall not be considered as an 
     administrative cost of the State for the operation of the 
     plan, and the fees shall be considered income to the 
     program);''.
       (b) Conforming Amendments.--Section 457(a)(3) (42 U.S.C. 
     657(a)(3)) is amended to read as follows:
       ``(3) Families that never received assistance.--In the case 
     of any other family, the State shall distribute to the family 
     the portion of the amount so collected that remains after 
     withholding any fee pursuant to section 454(6)(B)(ii).''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 2006.

     SEC. 7311. EXCEPTION TO GENERAL EFFECTIVE DATE FOR STATE 
                   PLANS REQUIRING STATE LAW AMENDMENTS.

       In the case of a State plan under part D of title IV of the 
     Social Security Act which the Secretary determines requires 
     State legislation in order for the plan to meet the 
     additional requirements imposed by the amendments made by 
     this subtitle, the effective date of the amendments imposing 
     the additional requirements shall be 3 months after 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 preceding sentence, in the case of a State 
     that has a 2-year legislative session, each year of the 
     session shall be considered to be a separate regular session 
     of the State legislature.
                       Subtitle D--Child Welfare

     SEC. 7401. STRENGTHENING COURTS.

       (a) Court Improvement Grants.--
       (1) In general.--Section 438(a) (42 U.S.C. 629h(a)) is 
     amended--
       (A) by striking ``and'' at the end of paragraph (1);
       (B) by striking the period at the end of paragraph (2) and 
     inserting a semicolon; and
       (C) by adding at the end the following:
       ``(3) to ensure that the safety, permanence, and well-being 
     needs of children are met in a timely and complete manner; 
     and

[[Page H12678]]

       ``(4) to provide for the training of judges, attorneys and 
     other legal personnel in child welfare cases.''.
       (2) Applications.--Section 438(b) (42 U.S.C. 629h(b)) is 
     amended to read as follows:
       ``(b) Applications.--
       ``(1) In general.--In order to be eligible to receive a 
     grant under this section, a highest State court shall submit 
     to the Secretary an application at such time, in such form, 
     and including such information and assurances as the 
     Secretary may require, including--
       ``(A) in the case of a grant for the purpose described in 
     subsection (a)(3), a description of how courts and child 
     welfare agencies on the local and State levels will 
     collaborate and jointly plan for the collection and sharing 
     of all relevant data and information to demonstrate how 
     improved case tracking and analysis of child abuse and 
     neglect cases will produce safe and timely permanency 
     decisions;
       ``(B) in the case of a grant for the purpose described in 
     subsection (a)(4), a demonstration that a portion of the 
     grant will be used for cross-training initiatives that are 
     jointly planned and executed with the State agency or any 
     other agency under contract with the State to administer the 
     State program under the State plan under subpart 1, the State 
     plan approved under section 434, or the State plan approved 
     under part E; and
       ``(C) in the case of a grant for any purpose described in 
     subsection (a), a demonstration of meaningful and ongoing 
     collaboration among the courts in the State, the State agency 
     or any other agency under contract with the State who is 
     responsible for administering the State program under part B 
     or E, and, where applicable, Indian tribes..
       ``(2) Separate applications.-- A highest State court 
     desiring grants under this section for 2 or more purposes 
     shall submit separate applications for the following grants:
       ``(A) A grant for the purposes described in paragraphs (1) 
     and (2) of subsection (a).
       ``(B) A grant for the purpose described in subsection 
     (a)(3).
       ``(C) A grant for the purpose described in subsection 
     (a)(4).''.
       (3) Allotments.--Section 438(c) (42 U.S.C. 429h(c)) is 
     amended--
       (A) in paragraph (1)--
       (i) by inserting ``of this section for a grant described in 
     subsection (b)(2)(A) of this section'' after ``subsection 
     (b)''; and
       (ii) by striking ``paragraph (2) of this subsection'' and 
     inserting ``subparagraph (B) of this paragraph'';
       (B) in paragraph (2)--
       (i) by striking ``this paragraph'' and inserting ``this 
     subparagraph'';
       (ii) by striking ``paragraph (1) of this subsection'' and 
     inserting ``subparagraph (A) of this paragraph''; and
       (iii) by inserting ``for such a grant'' after ``subsection 
     (b)'';
       (C) by redesignating and indenting paragraphs (1) and (2) 
     as subparagraphs (A) and (B), respectively;
       (D) by inserting before and above such subparagraph (A) the 
     following:
       ``(1) Grants to assess and improve handling of court 
     proceedings relating to foster care and adoption.--''; and
       (E) by adding at the end the following:
       ``(2) Grants for improved data collection and training.--
       ``(A) In general.--Each highest State court which has an 
     application approved under subsection (b) of this section for 
     a grant referred to in subparagraph (B) or (C) of subsection 
     (b)(2) shall be entitled to payment, for each of fiscal years 
     2006 through 2010, from the amount made available under 
     whichever of paragraph (1) or (2) of subsection (e) applies 
     with respect to the grant, of an amount equal to the sum of 
     $85,000 plus the amount described in subparagraph (B) of this 
     paragraph for the fiscal year with respect to the grant.
       ``(B) Formula.--The amount described in this subparagraph 
     for any fiscal year with respect to a grant referred to in 
     subparagraph (B) or (C) of subsection (b)(2) is the amount 
     that bears the same ratio to the amount made available under 
     subsection (e) for such a grant (reduced by the dollar amount 
     specified in subparagraph (A) of this paragraph) as the 
     number of individuals in the State who have not attained 21 
     years of age bears to the total number of such individuals in 
     all States the highest State courts of which have approved 
     applications under subsection (b) for such a grant.''.
       (4) Funding.--Section 438 (42 U.S.C. 629h) is amended by 
     adding at the end the following:
       ``(e) Funding for Grants for Improved Data Collection and 
     Training.--Out of any money in the Treasury of the United 
     States not otherwise appropriated, there are appropriated to 
     the Secretary, for each of fiscal years 2006 through 2010--
       ``(1) $10,000,000 for grants referred to in subsection 
     (b)(2)(B); and
       ``(2) $10,000,000 for grants referred to in subsection 
     (b)(2)(C).''.
       (b) Requirement to Demonstrate Meaningful Collaboration 
     Between Courts and Agencies in Child Welfare Services 
     Programs.--Section 422(b) (42 U.S.C. 622(b)) is amended--
       (1) by striking ``and'' at the end of paragraph (13);
       (2) by striking the period at the end of paragraph (14) and 
     inserting ``; and''; and
       (3) by adding at the end the following:
       ``(15) demonstrate substantial, ongoing, and meaningful 
     collaboration with State courts in the development and 
     implementation of the State plan under subpart 1, the State 
     plan approved under subpart 2, and the State plan approved 
     under part E, and in the development and implementation of 
     any program improvement plan required under section 1123A.''.
       (c) Use of Child Welfare Records in State Court 
     Proceedings.--Section 471 (42 U.S.C. 671) is amended--
       (1) in subsection (a)(8), by inserting ``subject to 
     subsection (c),'' after ``(8)''; and
       (2) by adding at the end the following:
       ``(c) Use of Child Welfare Records in State Court 
     Proceedings.--Subsection (a)(8) shall not be construed to 
     limit the flexibility of a State in determining State 
     policies relating to public access to court proceedings to 
     determine child abuse and neglect or other court hearings 
     held pursuant to part B or this part, except that such 
     policies shall, at a minimum, ensure the safety and well-
     being of the child, parents, and family.''.

     SEC. 7402. FUNDING OF SAFE AND STABLE FAMILIES PROGRAMS.

       Section 436(a) (42 U.S.C. 629f(a)) is amended to read as 
     follows:
       ``(a) Authorization.--In addition to any amount otherwise 
     made available to carry out this subpart, there are 
     authorized to be appropriated to carry out this subpart 
     $345,000,000 for fiscal year 2006. Notwithstanding the 
     preceding sentence, the total amount authorized to be so 
     appropriated for fiscal year 2006 under this subsection and 
     under this subsection (as in effect before the date of the 
     enactment of the Deficit Reduction Act of 2005) is 
     $345,000,000.''.

     SEC. 7403. CLARIFICATION REGARDING FEDERAL MATCHING OF 
                   CERTAIN ADMINISTRATIVE COSTS UNDER THE FOSTER 
                   CARE MAINTENANCE PAYMENTS PROGRAM.

       (a) Administrative Costs Relating to Unlicensed Care.--
     Section 472 (42 U.S.C. 672) is amended by inserting after 
     subsection (h) the following:
       ``(i) Administrative Costs Associated With Otherwise 
     Eligible Children not in Licensed Foster Care Settings.--
     Expenditures by a State that would be considered 
     administrative expenditures for purposes of section 474(a)(3) 
     if made with respect to a child who was residing in a foster 
     family home or child-care institution shall be so considered 
     with respect to a child not residing in such a home or 
     institution--
       ``(1) in the case of a child who has been removed in 
     accordance with subsection (a) of this section from the home 
     of a relative specified in section 406(a) (as in effect on 
     July 16, 1996), only for expenditures--
       ``(A) with respect to a period of not more than the lesser 
     of 12 months or the average length of time it takes for the 
     State to license or approve a home as a foster home, in which 
     the child is in the home of a relative and an application is 
     pending for licensing or approval of the home as a foster 
     family home; or
       ``(B) with respect to a period of not more than 1 calendar 
     month when a child moves from a facility not eligible for 
     payments under this part into a foster family home or child 
     care institution licensed or approved by the State; and
       ``(2) in the case of any other child who is potentially 
     eligible for benefits under a State plan approved under this 
     part and at imminent risk of removal from the home, only if--
       ``(A) reasonable efforts are being made in accordance with 
     section 471(a)(15) to prevent the need for, or if necessary 
     to pursue, removal of the child from the home; and
       ``(B) the State agency has made, not less often than every 
     6 months, a determination (or redetermination) as to whether 
     the child remains at imminent risk of removal from the 
     home.''.
       (b) Conforming Amendment.--Section 474(a)(3) (42 U.S.C. 
     674(a)(3)) is amended by inserting ``subject to section 
     472(i)'' before ``an amount equal to''.

     SEC. 7404. CLARIFICATION OF ELIGIBILITY FOR FOSTER CARE 
                   MAINTENANCE PAYMENTS AND ADOPTION ASSISTANCE.

       (a) Foster Care Maintenance Payments.--Section 472(a) (42 
     U.S.C. 672(a)) is amended to read as follows:
       ``(a) In General.--
       ``(1) Eligibility.--Each State with a plan approved under 
     this part shall make foster care maintenance payments on 
     behalf of each child who has been removed from the home of a 
     relative specified in section 406(a) (as in effect on July 
     16, 1996) into foster care if--
       ``(A) the removal and foster care placement met, and the 
     placement continues to meet, the requirements of paragraph 
     (2); and
       ``(B) the child, while in the home, would have met the AFDC 
     eligibility requirement of paragraph (3).
       ``(2) Removal and foster care placement requirements.--The 
     removal and foster care placement of a child meet the 
     requirements of this paragraph if--
       ``(A) the removal and foster care placement are in 
     accordance with--
       ``(i) a voluntary placement agreement entered into by a 
     parent or legal guardian of the child who is the relative 
     referred to in paragraph (1); or
       ``(ii) a judicial determination to the effect that 
     continuation in the home from which removed would be contrary 
     to the welfare of the child and that reasonable efforts of 
     the type described in section 471(a)(15) for a child have 
     been made;
       ``(B) the child's placement and care are the responsibility 
     of--
       ``(i) the State agency administering the State plan 
     approved under section 471; or
       ``(ii) any other public agency with which the State agency 
     administering or supervising the administration of the State 
     plan has made an agreement which is in effect; and
       ``(C) the child has been placed in a foster family home or 
     child-care institution.
       ``(3) AFDC eligibility requirement.--
       ``(A) In general.--A child in the home referred to in 
     paragraph (1) would have met the AFDC eligibility requirement 
     of this paragraph if the child--
       ``(i) would have received aid under the State plan approved 
     under section 402 (as in effect on July 16, 1996) in the 
     home, in or for the month

[[Page H12679]]

     in which the agreement was entered into or court proceedings 
     leading to the determination referred to in paragraph 
     (2)(A)(ii) of this subsection were initiated; or
       ``(ii)(I) would have received the aid in the home, in or 
     for the month referred to in clause (i), if application had 
     been made therefor; or
       ``(II) had been living in the home within 6 months before 
     the month in which the agreement was entered into or the 
     proceedings were initiated, and would have received the aid 
     in or for such month, if, in such month, the child had been 
     living in the home with the relative referred to in paragraph 
     (1) and application for the aid had been made.
       ``(B) Resources determination.--For purposes of 
     subparagraph (A), in determining whether a child would have 
     received aid under a State plan approved under section 402 
     (as in effect on July 16, 1996), a child whose resources 
     (determined pursuant to section 402(a)(7)(B), as so in 
     effect) have a combined value of not more than $10,000 shall 
     be considered a child whose resources have a combined value 
     of not more than $1,000 (or such lower amount as the State 
     may determine for purposes of section 402(a)(7)(B)).
       ``(4) Eligibility of certain alien children.--Subject to 
     title IV of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996, if the child is an alien 
     disqualified under section 245A(h) or 210(f) of the 
     Immigration and Nationality Act from receiving aid under the 
     State plan approved under section 402 in or for the month in 
     which the agreement described in paragraph (2)(A)(i) was 
     entered into or court proceedings leading to the 
     determination described in paragraph (2)(A)(ii) were 
     initiated, the child shall be considered to satisfy the 
     requirements of paragraph (3), with respect to the month, if 
     the child would have satisfied the requirements but for the 
     disqualification.''.
       (b) Adoption Assistance.--Section 473(a)(2) (42 U.S.C. 
     673(a)(2)) is amended to read as follows:
       ``(2)(A) For purposes of paragraph (1)(B)(ii), a child 
     meets the requirements of this paragraph if the child--
       ``(i)(I)(aa) was removed from the home of a relative 
     specified in section 406(a) (as in effect on July 16, 1996) 
     and placed in foster care in accordance with a voluntary 
     placement agreement with respect to which Federal payments 
     are provided under section 474 (or section 403, as such 
     section was in effect on July 16, 1996), or in accordance 
     with a judicial determination to the effect that continuation 
     in the home would be contrary to the welfare of the child; 
     and
       ``(bb) met the requirements of section 472(a)(3) with 
     respect to the home referred to in item (aa) of this 
     subclause;
       ``(II) meets all of the requirements of title XVI with 
     respect to eligibility for supplemental security income 
     benefits; or
       ``(III) is a child whose costs in a foster family home or 
     child-care institution are covered by the foster care 
     maintenance payments being made with respect to the minor 
     parent of the child as provided in section 475(4)(B); and
       ``(ii) has been determined by the State, pursuant to 
     subsection (c) of this section, to be a child with special 
     needs.
       ``(B) Section 472(a)(4) shall apply for purposes of 
     subparagraph (A) of this paragraph, in any case in which the 
     child is an alien described in such section.
       ``(C) A child shall be treated as meeting the requirements 
     of this paragraph for the purpose of paragraph (1)(B)(ii) if 
     the child--
       ``(i) meets the requirements of subparagraph (A)(ii);
       ``(ii) was determined eligible for adoption assistance 
     payments under this part with respect to a prior adoption;
       ``(iii) is available for adoption because--
       ``(I) the prior adoption has been dissolved, and the 
     parental rights of the adoptive parents have been terminated; 
     or
       ``(II) the child's adoptive parents have died; and
       ``(iv) fails to meet the requirements of subparagraph (A) 
     but would meet such requirements if--
       ``(I) the child were treated as if the child were in the 
     same financial and other circumstances the child was in the 
     last time the child was determined eligible for adoption 
     assistance payments under this part; and
       ``(II) the prior adoption were treated as never having 
     occurred.''.
                Subtitle E--Supplemental Security Income

     SEC. 7501. REVIEW OF STATE AGENCY BLINDNESS AND DISABILITY 
                   DETERMINATIONS.

        Section 1633 (42 U.S.C. 1383b) is amended by adding at the 
     end the following:
       ``(e)(1) The Commissioner of Social Security shall review 
     determinations, made by State agencies pursuant to subsection 
     (a) in connection with applications for benefits under this 
     title on the basis of blindness or disability, that 
     individuals who have attained 18 years of age are blind or 
     disabled as of a specified onset date. The Commissioner of 
     Social Security shall review such a determination before any 
     action is taken to implement the determination.
       ``(2)(A) In carrying out paragraph (1), the Commissioner of 
     Social Security shall review--
       ``(i) at least 20 percent of all determinations referred to 
     in paragraph (1) that are made in fiscal year 2006;
       ``(ii) at least 40 percent of all such determinations that 
     are made in fiscal year 2007; and
       ``(iii) at least 50 percent of all such determinations that 
     are made in fiscal year 2008 or thereafter.
       ``(B) In carrying out subparagraph (A), the Commissioner of 
     Social Security shall, to the extent feasible, select for 
     review the determinations which the Commissioner of Social 
     Security identifies as being the most likely to be 
     incorrect.''.

     SEC. 7502. PAYMENT OF CERTAIN LUMP SUM BENEFITS IN 
                   INSTALLMENTS UNDER THE SUPPLEMENTAL SECURITY 
                   INCOME PROGRAM.

       (a) In General.--Section 1631(a)(10)(A)(i) (42 U.S.C. 
     1383(a)(10)(A)(i)) is amended by striking ``12'' and 
     inserting ``3''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect 3 months after the date of the enactment of 
     this Act.
       Subtitle F--Repeal of Continued Dumping and Subsidy Offset

     SEC. 7601. REPEAL OF CONTINUED DUMPING AND SUBSIDY OFFSET.

       (a) Repeal.--Effective upon the date of enactment of this 
     Act, section 754 of the Tariff Act of 1930 (19 U.S.C. 1675c), 
     and the item relating to section 754 in the table of contents 
     for title VII of that Act, are repealed.
       (b) Distributions on Certain Entries.--All duties on 
     entries of goods made and filed before October 1, 2007, that 
     would, but for subsection (a) of this section, be distributed 
     under section 754 of the Tariff Act of 1930, shall be 
     distributed as if section 754 of the Tariff Act of 1930 had 
     not been repealed by subsection (a).
                       Subtitle G--Effective Date

     SEC. 7701. EFFECTIVE DATE.

       Except as otherwise provided in this title, this title and 
     the amendments made by this title shall take effect as if 
     enacted on October 1, 2005.
          TITLE VIII--EDUCATION AND PENSION BENEFIT PROVISIONS
                Subtitle A--Higher Education Provisions

     SEC. 8001. SHORT TITLE; REFERENCE; EFFECTIVE DATE.

       (a) Short Title.--This subtitle may be cited as the 
     ``Higher Education Reconciliation Act of 2005''.
       (b) References.--Except as otherwise expressly provided, 
     whenever in this subtitle 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 Higher Education Act of 
     1965 (20 U.S.C. 1001 et seq.).
       (c) Effective Date.--Except as otherwise provided in this 
     subtitle or the amendments made by this subtitle, the 
     amendments made by this subtitle shall be effective July 1, 
     2006.

     SEC. 8002. MODIFICATION OF 50/50 RULE.

       Section 102(a)(3) (20 U.S.C. 1002(a)(3)) is amended--
       (1) in subparagraph (A), by inserting ``(excluding courses 
     offered by telecommunications as defined in section 
     484(l)(4))'' after ``courses by correspondence''; and
       (2) in subparagraph (B), by inserting ``(excluding courses 
     offered by telecommunications as defined in section 
     484(l)(4))'' after ``correspondence courses''.

     SEC. 8003. ACADEMIC COMPETITIVENESS GRANTS.

       Subpart 1 of part A of title IV (20 U.S.C. 1070a) is 
     amended by adding after section 401 the following new 
     section:

     ``SEC. 401A. ACADEMIC COMPETITIVENESS GRANTS.

       ``(b) Academic Competitiveness Grant Program.--
       ``(1) Academic competitiveness grants authorized.--The 
     Secretary shall award grants, in the amounts specified in 
     subsection (e)(1), to eligible students to assist the 
     eligible students in paying their college education expenses.
       ``(2) Academic competitiveness council.--
       ``(A) Establishment.--There is established an Academic 
     Competitiveness Council (referred to in this paragraph as the 
     `Council'). From the funds made available under subsection 
     (f) for fiscal year 2006, $50,000 shall be available to the 
     Council to carry out the duties described in subparagraph 
     (B). The Council shall be chaired by the Secretary of 
     Education, and the membership of the Council shall consist of 
     officials from Federal agencies with responsibilities for 
     managing existing Federal programs that promote mathematics 
     and science (or designees of such officials with significant 
     decision-making authority).
       ``(B) Duties.--The Council shall--
       ``(i) identify all Federal programs with a mathematics or 
     science focus;
       ``(ii) identify the target populations being served by such 
     programs;
       ``(iii) determine the effectiveness of such programs;
       ``(iv) identify areas of overlap or duplication in such 
     programs; and
       ``(v) recommend ways to efficiently integrate and 
     coordinate such programs.
       ``(C) Report.--Not later than one year after the date of 
     enactment of the Higher Education Reconciliation Act of 2005, 
     the Council shall transmit a report to each committee of 
     Congress with jurisdiction over a Federal program identified 
     under subparagraph (B)(i), detailing the findings and 
     recommendations under subparagraph (B), including 
     recommendations for legislative or administrative action.
       ``(c) Designation.--A grant under this section--
       ``(1) for the first or second academic year of a program of 
     undergraduate education shall be known as an `Academic 
     Competitiveness Grant'; and
       ``(2) for the third or fourth academic year of a program of 
     undergraduate education shall be known as a `National Science 
     and Mathematics Access to Retain Talent Grant' or a `National 
     SMART Grant'.
       ``(d) Definition of Eligible Student.--In this section the 
     term `eligible student' means a full-time student who, for 
     the academic year for which the determination of eligibility 
     is made--
       ``(1) is a citizen of the United States;
       ``(2) is eligible for a Federal Pell Grant; and
       ``(3) in the case of a student enrolled or accepted for 
     enrollment in--

[[Page H12680]]

       ``(A) the first academic year of a program of undergraduate 
     education at a two- or four-year degree-granting institution 
     of higher education--
       ``(i) has successfully completed, after January 1, 2006, a 
     rigorous secondary school program of study established by a 
     State or local educational agency and recognized as such by 
     the Secretary; and
       ``(ii) has not been previously enrolled in a program of 
     undergraduate education;
       ``(B) the second academic year of a program of 
     undergraduate education at a two- or four-year degree-
     granting institution of higher education--
       ``(i) has successfully completed, after January 1, 2005, a 
     rigorous secondary school program of study established by a 
     State or local educational agency and recognized as such by 
     the Secretary; and
       ``(ii) has obtained a cummulative grade point average of at 
     least 3.0 (or the equivalent as determined under regulations 
     prescribed by the Secretary) at the end of the first academic 
     year of such program of undergraduate education; or
       ``(C) the third or fourth academic year of a program of 
     undergraduate education at a four-year degree-granting 
     institution of higher education--
       ``(i) is pursuing a major in--

       ``(I) the physical, life, or computer sciences, 
     mathematics, technology, or engineering (as determined by the 
     Secretary pursuant to regulations); or
       ``(II) a foreign language that the Secretary, in 
     consultation with the Director of National Intelligence, 
     determines is critical to the national security of the United 
     States; and

       ``(ii) has obtained a cummulative grade point average of at 
     least 3.0 (or the equivalent as determined under regulations 
     prescribed by the Secretary) in the coursework required for 
     the major described in clause (i).
       ``(e) Grant Award.--
       ``(1) Amounts.--
       ``(A) The Secretary shall award a grant under this section 
     in the amount of--
       ``(i) $750 for an eligible student under subsection 
     (d)(3)(A);
       ``(ii) $1,300 for an eligible student under subsection 
     (d)(3)(B); or
       ``(iii) $4,000 for an eligible student under subsection 
     (d)(3)(C).
       ``(B) Notwithstanding subparagraph (A)--
       ``(i) the amount of such grant, in combination with the 
     Federal Pell Grant assistance and other student financial 
     assistance available to such student, shall not exceed the 
     student's cost of attendance;
       ``(ii) if the amount made available under subsection (f) 
     for any fiscal year is less than the amount required to 
     provide grants to all eligible students in the amounts 
     determined under subparagraph (A) and clause (i) of this 
     subparagraph, then the amount of the grant to each eligible 
     student shall be ratably reduced; and
       ``(iii) if additional amounts are appropriated for any such 
     fiscal year, such reduced amounts shall be increased on the 
     same basis as they were reduced.
       ``(2) Limitations.--The Secretary shall not award a grant 
     under this section--
       ``(A) to any student for an academic year of a program of 
     undergraduate education described in subparagraph (A), (B), 
     or (C) of subsection (d)(3) for which the student received 
     credit before the date of enactment of the Higher Education 
     Reconciliation Act of 2005; or
       ``(B) to any student for more than--
       ``(i) one academic year under subsection (d)(3)(A);
       ``(ii) one academic year under subsection (d)(3)(B); or
       ``(iii) two academic years under subsection (d)(3)(C).
       ``(f) Funding.--
       ``(1) Authorization and appropriation of funds.--There are 
     authorized to be appropriated, and there are appropriated, 
     out of any money in the Treasury not otherwise appropriated, 
     for the Department of Education to carry out this section--
       ``(A) $790,000,000 for fiscal year 2006;
       ``(B) $850,000,000 for fiscal year 2007;
       ``(C) $920,000,000 for fiscal year 2008;
       ``(D) $960,000,000 for fiscal year 2009; and
       ``(E) $1,010,000,000 for fiscal year 2010.
       ``(2) Use of excess funds.--If, at the end of a fiscal 
     year, the funds available for awarding grants under this 
     section exceed the amount necessary to make such grants in 
     the amounts authorized by subsection (e), then all of the 
     excess funds shall remain available for awarding grants under 
     this section during the subsequent fiscal year.
       ``(g) Recognition of Programs of Study.--The Secretary 
     shall recognize at least one rigorous secondary school 
     program of study in each State under subsection (d)(3)(A) and 
     (B) for the purpose of determining student eligibility under 
     such subsection.
       ``(h) Sunset Provision.--The authority to make grants under 
     this section shall expire at the end of academic year 2010-
     2011.''.

     SEC. 8004. REAUTHORIZATION OF FEDERAL FAMILY EDUCATION LOAN 
                   PROGRAM.

       (a) Authorization of Appropriations.--Section 421(b)(5) (20 
     U.S.C. 1071(b)(5)) is amended by striking ``an administrative 
     cost allowance'' and inserting ``a loan processing and 
     issuance fee''.
       (b) Extension of Authority.--
       (1) Federal insurance limitations.--Section 424(a) (20 
     U.S.C. 1074(a)) is amended--
       (A) by striking ``2004'' and inserting ``2012''; and
       (B) by striking ``2008'' and inserting ``2016''.
       (2) Guaranteed loans.--Section 428(a)(5) (20 U.S.C. 
     1078(a)(5)) is amended--
       (A) by striking ``2004'' and inserting ``2012''; and
       (B) by striking ``2008'' and inserting ``2016''.
       (3) Consolidation loans.--Section 428C(e) (20 U.S.C. 1078-
     3(e)) is amended by striking ``2004'' and inserting ``2012''.

     SEC. 8005. LOAN LIMITS.

       (a) Federal Insurance Limits.--Section 425(a)(1)(A) (20 
     U.S.C. 1075(a)(1)(A)) is amended--
       (1) in clause (i)(I), by striking ``$2,625'' and inserting 
     ``$3,500''; and
       (2) in clause (ii)(I), by striking ``$3,500'' and inserting 
     ``$4,500''.
       (b) Guarantee Limits.--Section 428(b)(1)(A) (20 U.S.C. 
     1078(b)(1)(A)) is amended--
       (1) in clause (i)(I), by striking ``$2,625'' and inserting 
     ``$3,500''; and
       (2) in clause (ii)(I), by striking ``$3,500'' and inserting 
     ``$4,500''.
       (c) Federal PLUS Loans.--Section 428B (20 U.S.C. 1078-2) is 
     amended--
       (1) in subsection (a)(1)--
       (A) in the matter preceding subparagraph (A), by striking 
     ``Parents'' and inserting ``A graduate or professional 
     student or the parents'';
       (B) in subparagraph (A), by striking ``the parents'' and 
     inserting ``the graduate or professional student or the 
     parents''; and
       (C) in subparagraph (B), by striking ``the parents'' and 
     inserting ``the graduate or professional student or the 
     parents'';
       (2) in subsection (b), by striking ``any parent'' and 
     inserting ``any graduate or professional student or any 
     parent'';
       (3) in subsection (c)(2), by striking ``parent'' and 
     inserting ``graduate or professional student or parent''; and
       (4) in subsection (d)(1), by striking ``the parent'' and 
     inserting ``the graduate or professional student or the 
     parent''.
       (d) Unsubsidized Stafford Loans for Graduate or 
     Professional Students.--Section 428H(d)(2) (20 U.S.C. 1078-
     8(d)(2)) is amended--
       (1) in subparagraph (C), by striking ``$10,000'' and 
     inserting ``$12,000''; and
       (2) in subparagraph (D)--
       (A) in clause (i), by striking ``$5,000'' and inserting 
     ``$7,000''; and
       (B) in clause (ii), by striking ``$5,000'' and inserting 
     ``$7,000''.
       (e) Effective Date of Increases.--The amendments made by 
     subsections (a), (b), and (d) shall be effective July 1, 
     2007.

     SEC. 8006. PLUS LOAN INTEREST RATES AND ZERO SPECIAL 
                   ALLOWANCE PAYMENT.

       (a) PLUS Loans.--Section 427A(l)(2) (20 U.S.C. 1077a(l)(2)) 
     is amended by striking ``7.9 percent'' and inserting ``8.5 
     percent''.
       (b) Conforming Amendments for Special Allowances.--
       (1) Amendments.--Subparagraph (I) of section 438(b)(2) (20 
     U.S.C. 1087-1(b)(2)) is amended--
       (A) in clause (iii), by striking ``, subject to clause (v) 
     of this subparagraph'';
       (B) in clause (iv), by striking ``, subject to clause (vi) 
     of this subparagraph''; and
       (C) by striking clauses (v), (vi), and (vii) and inserting 
     the following:
       ``(v) Recapture of excess interest.--

       ``(I) Excess credited.--With respect to a loan on which the 
     applicable interest rate is determined under subsection (k) 
     or (l) of section 427A and for which the first disbursement 
     of principal is made on or after April 1, 2006, if the 
     applicable interest rate for any 3-month period exceeds the 
     special allowance support level applicable to such loan under 
     this subparagraph for such period, then an adjustment shall 
     be made by calculating the excess interest in the amount 
     computed under subclause (II) of this clause, and by 
     crediting the excess interest to the Government not less 
     often than annually.
       ``(II) Calculation of excess.--The amount of any adjustment 
     of interest on a loan to be made under this subsection for 
     any quarter shall be equal to--

       ``(aa) the applicable interest rate minus the special 
     allowance support level determined under this subparagraph; 
     multiplied by
       ``(bb) the average daily principal balance of the loan (not 
     including unearned interest added to principal) during such 
     calendar quarter; divided by
       ``(cc) four.

       ``(III) Special allowance support level.--For purposes of 
     this clause, the term `special allowance support level' 
     means, for any loan, a number expressed as a percentage equal 
     to the sum of the rates determined under subclauses (I) and 
     (III) of clause (i), and applying any substitution rules 
     applicable to such loan under clauses (ii), (iii), and (iv) 
     in determining such sum.''.

       (2) Effective date.--The amendments made by this subsection 
     shall not apply with respect to any special allowance payment 
     made under section 438 of the Higher Education Act of 1965 
     (20 U.S.C 1087-1) before April 1, 2006.

     SEC. 8007. DEFERMENT OF STUDENT LOANS FOR MILITARY SERVICE.

       (a) Federal Family Education Loans.--Section 428(b)(1)(M) 
     (20 U.S.C. 1078(b)(1)(M)) is amended--
       (1) by striking ``or'' at the end of clause (ii);
       (2) by redesignating clause (iii) as clause (iv); and
       (3) by inserting after clause (ii) the following new 
     clause:
       ``(iii) not in excess of 3 years during which the 
     borrower--

       ``(I) is serving on active duty during a war or other 
     military operation or national emergency; or
       ``(II) is performing qualifying National Guard duty during 
     a war or other military operation or national emergency; 
     or''.

       (b) Direct Loans.--Section 455(f)(2) (20 U.S.C. 
     1087e(f)(2)) is amended--
       (1) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (2) by inserting after subparagraph (B) the following new 
     subparagraph:

[[Page H12681]]

       ``(C) not in excess of 3 years during which the borrower--
       ``(i) is serving on active duty during a war or other 
     military operation or national emergency; or
       ``(ii) is performing qualifying National Guard duty during 
     a war or other military operation or national emergency; 
     or''.
       (c) Perkins Loans.--Section 464(c)(2)(A) (20 U.S.C. 
     1087dd(c)(2)(A)) is amended--
       (1) by redesignating clauses (iii) and (iv) as clauses (iv) 
     and (v), respectively; and
       (2) by inserting after clause (ii) the following new 
     clause:
       ``(iii) not in excess of 3 years during which the 
     borrower--

       ``(I) is serving on active duty during a war or other 
     military operation or national emergency; or
       ``(II) is performing qualifying National Guard duty during 
     a war or other military operation or national emergency;''.

       (d) Definitions.--Section 481 (20 U.S.C. 1088) is amended 
     by adding at the end the following new subsection:
       ``(d) Definitions for Military Deferments.--For purposes of 
     parts B, D, and E of this title:
       ``(1) Active duty.--The term `active duty' has the meaning 
     given such term in section 101(d)(1) of title 10, United 
     States Code, except that such term does not include active 
     duty for training or attendance at a service school.
       ``(2) Military operation.--The term `military operation' 
     means a contingency operation as such term is defined in 
     section 101(a)(13) of title 10, United States Code.
       ``(3) National emergency.--The term `national emergency' 
     means the national emergency by reason of certain terrorist 
     attacks declared by the President on September 14, 2001, or 
     subsequent national emergencies declared by the President by 
     reason of terrorist attacks.
       ``(4) Serving on active duty.--The term `serving on active 
     duty during a war or other military operation or national 
     emergency' means service by an individual who is--
       ``(A) a Reserve of an Armed Force ordered to active duty 
     under section 12301(a), 12301(g), 12302, 12304, or 12306 of 
     title 10, United States Code, or any retired member of an 
     Armed Force ordered to active duty under section 688 of such 
     title, for service in connection with a war or other military 
     operation or national emergency, regardless of the location 
     at which such active duty service is performed; and
       ``(B) any other member of an Armed Force on active duty in 
     connection with such emergency or subsequent actions or 
     conditions who has been assigned to a duty station at a 
     location other than the location at which such member is 
     normally assigned.
       ``(5) Qualifying national guard duty.--The term `qualifying 
     National Guard duty during a war or other military operation 
     or national emergency' means service as a member of the 
     National Guard on full-time National Guard duty (as defined 
     in section 101(d)(5) of title 10, United States Code) under a 
     call to active service authorized by the President or the 
     Secretary of Defense for a period of more than 30 consecutive 
     days under section 502(f) of title 32, United States Code, in 
     connection with a war, other military operation, or a 
     national emergency declared by the President and supported by 
     Federal funds.''.
       (e) Rule of Construction.--Nothing in the amendments made 
     by this section shall be construed to authorize any refunding 
     of any repayment of a loan.
       (f) Effective Date.--The amendments made by this section 
     shall apply with respect to loans for which the first 
     disbursement is made on or after July 1, 2001.

     SEC. 8008. ADDITIONAL LOAN TERMS AND CONDITIONS.

       (a) Disbursement.--Section 428(b)(1)(N) (20 U.S.C. 
     1078(b)(1)(N)) is amended--
       (1) by striking ``or'' at the end of clause (i); and
       (2) by striking clause (ii) and inserting the following:
       ``(ii) in the case of a student who is studying outside the 
     United States in a program of study abroad that is approved 
     for credit by the home institution at which such student is 
     enrolled, and only after verification of the student's 
     enrollment by the lender or guaranty agency, are, at the 
     request of the student, disbursed directly to the student by 
     the means described in clause (i), unless such student 
     requests that the check be endorsed, or the funds transfer be 
     authorized, pursuant to an authorized power-of-attorney; or
       ``(iii) in the case of a student who is studying outside 
     the United States in a program of study at an eligible 
     foreign institution, are, at the request of the foreign 
     institution, disbursed directly to the student, only after 
     verification of the student's enrollment by the lender or 
     guaranty agency by the means described in clause (i).''.
       (b) Repayment Plans: Direct Loans.--Section 455(d)(1) (20 
     U.S.C. 1087e(d)(1)) is amended by striking subparagraphs (A), 
     (B), and (C) and inserting the following:
       ``(A) a standard repayment plan, consistent with subsection 
     (a)(1) of this section and with section 428(b)(9)(A)(i);
       ``(B) a graduated repayment plan, consistent with section 
     428(b)(9)(A)(ii);
       ``(C) an extended repayment plan, consistent with section 
     428(b)(9)(A)(v), except that the borrower shall annually 
     repay a minimum amount determined by the Secretary in 
     accordance with section 428(b)(1)(L); and''.
       (c) Origination Fees.--
       (1) FFEL program.--Paragraph (2) of section 438(c) (20 
     U.S.C. 1087-1(c)) is amended--
       (A) by striking the designation and heading of such 
     paragraph and inserting the following:
       ``(2) Amount of origination fees.--
       ``(A) In general.--''; and
       (B) by adding at the end the following new subparagraph:
       ``(B) Subsequent reductions.--Subparagraph (A) shall be 
     applied to loans made under this part (other than loans made 
     under sections 428C and 439(o))--
       ``(i) by substituting `2.0 percent' for `3.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2006, and before July 
     1, 2007;
       ``(ii) by substituting `1.5 percent' for `3.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2007, and before July 
     1, 2008;
       ``(iii) by substituting `1.0 percent' for `3.0 percent' 
     with respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2008, and before July 
     1, 2009;
       ``(iv) by substituting `0.5 percent' for `3.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2009, and before July 
     1, 2010; and
       ``(v) by substituting `0.0 percent' for `3.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2010.''.
       (2) Direct loan program.--Subsection (c) of section 455 (20 
     U.S.C. 1087e(c)) is amended--
       (A) by striking ``(c) Loan Fee.--'' and inserting the 
     following:
       ``(c) Loan Fee.--
       ``(1) In general.--''; and
       (B) by adding at the end the following:
       ``(2) Subsequent reduction.--Paragraph (1) shall be applied 
     to loans made under this part, other than Federal Direct 
     Consolidation loans and Federal Direct PLUS loans--
       ``(A) by substituting `3.0 percent' for `4.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after the date of enactment of the 
     Higher Education Reconciliation Act of 2005, and before July 
     1, 2007;
       ``(B) by substituting `2.5 percent' for `4.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2007, and before July 
     1, 2008;
       ``(C) by substituting `2.0 percent' for `4.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2008, and before July 
     1, 2009;
       ``(D) by substituting `1.5 percent' for `4.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2009, and before July 
     1, 2010; and
       ``(E) by substituting `1.0 percent' for `4.0 percent' with 
     respect to loans for which the first disbursement of 
     principal is made on or after July 1, 2010.''.
       (3) Conforming amendment.--Section 455(b)(8)(A) (20 U.S.C. 
     1087e(b)(8)(A)) is amended by inserting ``or origination 
     fee'' after ``reductions in the interest rate''.

     SEC. 8009. CONSOLIDATION LOAN CHANGES.

       (a) Consolidation Between Programs.--Section 428C (20 
     U.S.C. 1078-3) is amended--
       (1) in subsection (a)(3)(B)(i)--
       (A) by inserting ``or under section 455(g)'' after ``under 
     this section'' both places it appears;
       (B) by inserting ``under both sections'' after 
     ``terminates'';
       (C) by striking ``and'' at the end of subclause (III);
       (D) by striking the period at the end of subclause (IV) and 
     inserting ``; and''; and
       (E) by adding at the end the following new subclause:
       ``(V) an individual may obtain a subsequent consolidation 
     loan under section 455(g) only for the purposes of obtaining 
     an income contingent repayment plan, and only if the loan has 
     been submitted to the guaranty agency for default 
     aversion.''; and
       (2) in subsection (b)(5), by striking the first sentence 
     and inserting the following: ``In the event that a lender 
     with an agreement under subsection (a)(1) of this section 
     denies a consolidation loan application submitted to the 
     lender by an eligible borrower under this section, or denies 
     an application submitted to the lender by such a borrower for 
     a consolidation loan with income-sensitive repayment terms, 
     the Secretary shall offer any such borrower who applies for 
     it, a Federal Direct Consolidation loan. The Secretary shall 
     offer such a loan to a borrower who has defaulted, for the 
     purpose of resolving the default.''.
       (b) Repeal of In-School Consolidation.--
       (1) Definition of repayment period.--Section 428(b)(7)(A) 
     (20 U.S.C. 1078(b)(7)(A)) is amended by striking ``shall 
     begin--'' and all that follows through ``earlier date.'' and 
     inserting the following: ``shall begin the day after 6 months 
     after the date the student ceases to carry at least one-half 
     the normal full-time academic workload (as determined by the 
     institution).''.
       (2) Conforming change to eligible borrower definition.--
     Section 428C(a)(3)(A)(ii)(I) (20 U.S.C. 1078-
     3(a)(3)(A)(ii)(I)) is amended by inserting ``as determined 
     under section 428(b)(7)(A)'' after ``repayment status''.
       (c) Additional Amendments.--Section 428C (20 U.S.C. 1078-3) 
     is amended in subsection (a)(3), by striking subparagraph 
     (C).
       (d) Conforming Amendments to Direct Loan Program.--Section 
     455 (20 U.S.C. 1087e) is amended--
       (1) in subsection (a)(1) by inserting ``428C,'' after 
     ``428B,'';
       (2) in subsection (a)(2)--
       (A) by striking ``and'' at the end of subparagraph (B);
       (B) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (C) by inserting after subparagraph (B) the following:
       ``(C) section 428C shall be known as `Federal Direct 
     Consolidation Loans'; and''; and
       (3) in subsection (g)--
       (A) by striking the second sentence; and

[[Page H12682]]

       (B) by adding at the end the following new sentences: ``To 
     be eligible for a consolidation loan under this part, a 
     borrower shall meet the eligibility criteria set forth in 
     section 428C(a)(3). The Secretary, upon application for such 
     a loan, shall comply with the requirements applicable to a 
     lender under section 428C(b)(1)(F).''.

     SEC. 8010. REQUIREMENTS FOR DISBURSEMENTS OF STUDENT LOANS.

       Section 428G (20 U.S.C. 1078-7) is amended--
       (1) in subsection (a)(3), by adding at the end the 
     following: ``Notwithstanding section 422(d) of the Higher 
     Education Amendments of 1998, this paragraph shall be 
     effective beginning on the date of enactment of the Higher 
     Education Reconciliation Act of 2005.'';
       (2) in subsection (b)(1), by adding at the end the 
     following: ``Notwithstanding section 422(d) of the Higher 
     Education Amendments of 1998, the second sentence of this 
     paragraph shall be effective beginning on the date of 
     enactment of the Higher Education Reconciliation Act of 
     2005.''; and
       (3) in subsection (e), by striking ``, made to a student to 
     cover the cost of attendance at an eligible institution 
     outside the United States''.

     SEC. 8011. SCHOOL AS LENDER.

       Paragraph (2) of section 435(d) (20 U.S.C. 1085(d)(2)) is 
     amended to read as follows:
       ``(2) Requirements for eligible institutions.--
       ``(A) In general.--To be an eligible lender under this 
     part, an eligible institution--
       ``(i) shall employ at least one person whose full-time 
     responsibilities are limited to the administration of 
     programs of financial aid for students attending such 
     institution;
       ``(ii) shall not be a home study school;
       ``(iii) shall not--

       ``(I) make a loan to any undergraduate student;
       ``(II) make a loan other than a loan under section 428 or 
     428H to a graduate or professional student; or
       ``(III) make a loan to a borrower who is not enrolled at 
     that institution;

       ``(iv) shall award any contract for financing, servicing, 
     or administration of loans under this title on a competitive 
     basis;
       ``(v) shall offer loans that carry an origination fee or an 
     interest rate, or both, that are less than such fee or rate 
     authorized under the provisions of this title;
       ``(vi) shall not have a cohort default rate (as defined in 
     section 435(m)) greater than 10 percent;
       ``(vii) shall, for any year for which the institution 
     engages in activities as an eligible lender, provide for a 
     compliance audit conducted in accordance with section 
     428(b)(1)(U)(iii)(I), and the regulations thereunder, and 
     submit the results of such audit to the Secretary;
       ``(viii) shall use any proceeds from special allowance 
     payments and interest payments from borrowers, interest 
     subsidies received from the Department of Education, and any 
     proceeds from the sale or other disposition of loans, for 
     need-based grant programs; and
       ``(ix) shall have met the requirements of subparagraphs (A) 
     through (F) of this paragraph as in effect on the day before 
     the date of enactment of the Higher Education Reconciliation 
     Act of 2005, and made loans under this part, on or before 
     April 1, 2006.
       ``(B) Administrative expenses.--An eligible lender under 
     subparagraph (A) shall be permitted to use a portion of the 
     proceeds described in subparagraph (A)(viii) for reasonable 
     and direct administrative expenses.
       ``(C) Supplement, not supplant.--An eligible lender under 
     subparagraph (A) shall ensure that the proceeds described in 
     subparagraph (A)(viii) are used to supplement, and not to 
     supplant, non-Federal funds that would otherwise be used for 
     need-based grant programs.''.

     SEC. 8012. REPAYMENT BY THE SECRETARY OF LOANS OF BANKRUPT, 
                   DECEASED, OR DISABLED BORROWERS; TREATMENT OF 
                   BORROWERS ATTENDING SCHOOLS THAT FAIL TO 
                   PROVIDE A REFUND, ATTENDING CLOSED SCHOOLS, OR 
                   FALSELY CERTIFIED AS ELIGIBLE TO BORROW.

       Section 437 (20 U.S.C. 1087) is amended--
       (1) in the section heading, by striking ``CLOSED SCHOOLS OR 
     FALSELY CERTIFIED AS ELIGIBLE TO BORROW'' and inserting 
     ``SCHOOLS THAT FAIL TO PROVIDE A REFUND, ATTENDING CLOSED 
     SCHOOLS, OR FALSELY CERTIFIED AS ELIGIBLE TO BORROW''; and
       (2) in the first sentence of subsection (c)(1), by 
     inserting ``or was falsely certified as a result of a crime 
     of identity theft'' after ``falsely certified by the eligible 
     institution''.

     SEC. 8013. ELIMINATION OF TERMINATION DATES FROM TAXPAYER-
                   TEACHER PROTECTION ACT OF 2004.

       (a) Extension of Limitations on Special Allowance for Loans 
     From the Proceeds of Tax Exempt Issues.--Section 438(b)(2)(B) 
     (20 U.S.C. 1087-1(b)(2)(B)) is amended--
       (1) in clause (iv), by striking ``and before January 1, 
     2006,''; and
       (2) in clause (v)(II)--
       (A) by striking ``and before January 1, 2006,'' each place 
     it appears in divisions (aa) and (bb); and
       (B) by striking ``, and before January 1, 2006'' in 
     division (cc).
       (b) Additional Limitation on Special Allowance for Loans 
     From the Proceeds of Tax Exempt Issues.--Section 438(b)(2)(B) 
     (20 U.S.C. 1087-1(b)(2)(B)) is further amended by adding at 
     the end thereof the following new clauses:
       ``(vi) Notwithstanding clauses (i), (ii), and (v), but 
     subject to clause (vii), the quarterly rate of the special 
     allowance shall be the rate determined under subparagraph 
     (A), (E), (F), (G), (H), or (I) of this paragraph, as the 
     case may be, for a holder of loans--
       ``(I) that were made or purchased on or after the date of 
     enactment of the Higher Education Reconciliation Act of 2005; 
     or
       ``(II) that were not earning a quarterly rate of special 
     allowance determined under clauses (i) or (ii) of 
     subparagraph (B) of this paragraph (20 U.S.C. 1087-
     1(b)(2)(b)) as of the date of enactment of the Higher 
     Education Reconciliation Act of 2005.
       ``(vii) Clause (vi) shall be applied by substituting 
     `December 31, 2010' for `the date of enactment of the Higher 
     Education Reconciliation Act of 2005' in the case of a holder 
     of loans that--
       ``(I) was, as of the date of enactment of the Higher 
     Education Reconciliation Act of 2005, and during the quarter 
     for which the special allowance is paid, a unit of State or 
     local government or a nonprofit private entity;
       ``(II) was, as of such date of enactment, and during such 
     quarter, not owned or controlled by, or under common 
     ownership or control with, a for-profit entity; and
       ``(III) held, directly or through any subsidiary, 
     affiliate, or trustee, a total unpaid balance of principal 
     equal to or less than $100,000,000 on loans for which special 
     allowances were paid under this subparagraph in the most 
     recent quarterly payment prior to September 30, 2005.''.
       (c) Elimination of Effective Date Limitation on Higher 
     Teacher Loan Forgiveness Benefits.--
       (1) Technical clarification.--The matter preceding 
     paragraph (1) of section 2 of the Taxpayer-Teacher Protection 
     Act of 2004 (Public Law 108-409; 118 Stat. 2299) is amended 
     by inserting ``of the Higher Education Act of 1965'' after 
     ``Section 438(b)(2)(B)''.
       (2) Amendment.--Paragraph (3) of section 3(b) of the 
     Taxpayer-Teacher Protection Act of 2004 (20 U.S.C. 1078-10 
     note) is amended by striking ``, and before October 1, 
     2005''.
       (3) Effective dates.--The amendment made by paragraph (1) 
     shall be effective as if enacted on October 30, 2004, and the 
     amendment made by paragraph (2) shall be effective as if 
     enacted on October 1, 2005.
       (d) Coordination With Second Higher Education Extension Act 
     of 2005.--
       (1) Repeal.--Section 2 of the Second Higher Education 
     Extension Act of 2005 is amended by striking subsections (b) 
     and (c).
       (2) Effect on amendments.--The amendments made by 
     subsections (a) and (c) of this section shall be effective as 
     if the amendments made subsections (b) and (c) of section 2 
     of the Second Higher Education Extension Act of 2005 had not 
     been enacted.
       (e) Additional Changes to Teacher Loan Forgiveness 
     Provisions.--
       (1) FFEL provisions.--Section 428J (20 U.S.C. 1078-10) is 
     amended--
       (A) in subsection (b)(1)(B), by inserting after ``1965'' 
     the following: ``, or meets the requirements of subsection 
     (g)(3)''; and
       (B) in subsection (g), by adding at the end the following 
     new paragraph:
       ``(3) Private school teachers.--An individual who is 
     employed as a teacher in a private school and is exempt from 
     State certification requirements (unless otherwise applicable 
     under State law), may, in lieu of the requirement of 
     subsection (b)(1)(B), have such employment treated as 
     qualifying employment under this section if such individual 
     is permitted to and does satisfy rigorous subject knowledge 
     and skills tests by taking competency tests in the applicable 
     grade levels and subject areas. For such purposes, the 
     competency tests taken by such a private school teacher shall 
     be recognized by 5 or more States for the purpose of 
     fulfilling the highly qualified teacher requirements under 
     section 9101 of the Elementary and Secondary Education Act of 
     1965, and the score achieved by such teacher on each test 
     shall equal or exceed the average passing score of those 5 
     States.''.
       (2) Direct loan provisions.--Section 460 (20 U.S.C. 1087j) 
     is amended--
       (A) in subsection (b)(1)(A)(ii), by inserting after 
     ``1965'' the following: ``, or meets the requirements of 
     subsection (g)(3)''; and
       (B) in subsection (g), by adding at the end the following 
     new paragraph:
       ``(3) Private school teachers.--An individual who is 
     employed as a teacher in a private school and is exempt from 
     State certification requirements (unless otherwise applicable 
     under State law), may, in lieu of the requirement of 
     subsection (b)(1)(A)(ii), have such employment treated as 
     qualifying employment under this section if such individual 
     is permitted to and does satisfy rigorous subject knowledge 
     and skills tests by taking competency tests in the applicable 
     grade levels and subject areas. For such purposes, the 
     competency tests taken by such a private school teacher shall 
     be recognized by 5 or more States for the purpose of 
     fulfilling the highly qualified teacher requirements under 
     section 9101 of the Elementary and Secondary Education Act of 
     1965, and the score achieved by such teacher on each test 
     shall equal or exceed the average passing score of those 5 
     States.''.

     SEC. 8014. ADDITIONAL ADMINISTRATIVE PROVISIONS.

       (a) Insurance Percentage.--
       (1) Amendment.--Subparagraph (G) of section 428(b)(1) (20 
     U.S.C. 1078(b)(1)(G)) is amended to read as follows:
       ``(G) insures 98 percent of the unpaid principal of loans 
     insured under the program, except that--
       ``(i) such program shall insure 100 percent of the unpaid 
     principal of loans made with funds advanced pursuant to 
     section 428(j) or 439(q);
       ``(ii) for any loan for which the first disbursement of 
     principal is made on or after July 1, 2006, the preceding 
     provisions of this subparagraph shall be applied by 
     substituting `97 percent' for `98 percent'; and
       ``(iii) notwithstanding the preceding provisions of this 
     subparagraph, such program shall

[[Page H12683]]

     insure 100 percent of the unpaid principal amount of exempt 
     claims as defined in subsection (c)(1)(G);''.
       (2) Effective date of amendment.--The amendment made by 
     this subsection shall apply with respect to loans for which 
     the first disbursement of principal is made on or after July 
     1, 2006.
       (b) Federal Default Fees.--
       (1) In general.--Subparagraph (H) of section 428(b)(1) (20 
     U.S.C. 1078(b)(1)(H)) is amended to read as follows:
       ``(H) provides--
       ``(i) for loans for which the date of guarantee of 
     principal is before July 1, 2006, for the collection of a 
     single insurance premium equal to not more than 1.0 percent 
     of the principal amount of the loan, by deduction 
     proportionately from each installment payment of the proceeds 
     of the loan to the borrower, and ensures that the proceeds of 
     the premium will not be used for incentive payments to 
     lenders; or
       ``(ii) for loans for which the date of guarantee of 
     principal is on or after July 1, 2006, for the collection, 
     and the deposit into the Federal Student Loan Reserve Fund 
     under section 422A of a Federal default fee of an amount 
     equal to 1.0 percent of the principal amount of the loan, 
     which fee shall be collected either by deduction from the 
     proceeds of the loan or by payment from other non-Federal 
     sources, and ensures that the proceeds of the Federal default 
     fee will not be used for incentive payments to lenders;''.
       (2) Unsubsidized loans.--Section 428H(h) (20 U.S.C. 1078-
     8(h)) is amended by adding at the end the following new 
     sentences: ``Effective for loans for which the date of 
     guarantee of principal is on or after July 1, 2006, in lieu 
     of the insurance premium authorized under the preceding 
     sentence, each State or nonprofit private institution or 
     organization having an agreement with the Secretary under 
     section 428(b)(1) shall collect and deposit into the Federal 
     Student Loan Reserve Fund under section 422A, a Federal 
     default fee of an amount equal to 1.0 percent of the 
     principal amount of the loan, which fee shall be collected 
     either by deduction from the proceeds of the loan or by 
     payment from other non-Federal sources. The Federal default 
     fee shall not be used for incentive payments to lenders.''.
       (3) Voluntary flexible agreements.--Section 428A(a)(1) (20 
     U.S.C. 1078-1(a)(1)) is amended--
       (A) by striking ``or'' at the end of subparagraph (A);
       (B) by striking the period at the end of subparagraph (B) 
     and inserting ``; or''; and
       (C) by adding at the end the following new subparagraph:
       ``(C) the Federal default fee required by section 
     428(b)(1)(H) and the second sentence of section 428H(h).''.
       (c) Treatment of Exempt Claims.--
       (1) Amendment.--Section 428(c)(1) (20 U.S.C. 1078(c)(1)) is 
     amended--
       (A) by redesignating subparagraph (G) as subparagraph (H), 
     and moving such subparagraph 2 em spaces to the left; and
       (B) by inserting after subparagraph (F) the following new 
     subparagraph:
       ``(G)(i) Notwithstanding any other provisions of this 
     section, in the case of exempt claims, the Secretary shall 
     apply the provisions of--
       ``(I) the fourth sentence of subparagraph (A) by 
     substituting `100 percent' for `95 percent';
       ``(II) subparagraph (B)(i) by substituting `100 percent' 
     for `85 percent'; and
       ``(III) subparagraph (B)(ii) by substituting `100 percent' 
     for `75 percent'.
       ``(ii) For purposes of clause (i) of this subparagraph, the 
     term `exempt claims' means claims with respect to loans for 
     which it is determined that the borrower (or the student on 
     whose behalf a parent has borrowed), without the lender's or 
     the institution's knowledge at the time the loan was made, 
     provided false or erroneous information or took actions that 
     caused the borrower or the student to be ineligible for all 
     or a portion of the loan or for interest benefits thereon.''.
       (2) Effective date of amendments.--The amendments made by 
     this subsection shall apply with respect to loans for which 
     the first disbursement of principal is made on or after July 
     1, 2006.
       (d) Consolidation of Defaulted Loans.--Section 428(c) (20 
     U.S.C. 1078(c)) is further amended--
       (1) in paragraph (2)(A)--
       (A) by inserting ``(i)'' after ``including''; and
       (B) by inserting before the semicolon at the end the 
     following: ``and (ii) requirements establishing procedures to 
     preclude consolidation lending from being an excessive 
     proportion of guaranty agency recoveries on defaulted loans 
     under this part'';
       (2) in paragraph (2)(D), by striking ``paragraph (6)'' and 
     inserting ``paragraph (6)(A)''; and
       (3) in paragraph (6)--
       (A) by redesignating subparagraphs (A) and (B) as clauses 
     (i) and (ii), respectively;
       (B) by inserting ``(A)'' before ``For the purpose of 
     paragraph (2)(D),''; and
       (C) by adding at the end the following new subparagraphs:
       ``(B) A guaranty agency shall--
       ``(i) on or after October 1, 2006--
       ``(I) not charge the borrower collection costs in an amount 
     in excess of 18.5 percent of the outstanding principal and 
     interest of a defaulted loan that is paid off through 
     consolidation by the borrower under this title; and
       ``(II) remit to the Secretary a portion of the collection 
     charge under subclause (I) equal to 8.5 percent of the 
     outstanding principal and interest of such defaulted loan; 
     and
       ``(ii) on and after October 1, 2009, remit to the Secretary 
     the entire amount charged under clause (i)(I) with respect to 
     each defaulted loan that is paid off with excess 
     consolidation proceeds.
       ``(C) For purposes of subparagraph (B), the term `excess 
     consolidation proceeds' means, with respect to any guaranty 
     agency for any Federal fiscal year beginning on or after 
     October 1, 2009, the proceeds of consolidation of defaulted 
     loans under this title that exceed 45 percent of the agency's 
     total collections on defaulted loans in such Federal fiscal 
     year.''.
       (e) Documentation of Forbearance Agreements.--Section 
     428(c) (20 U.S.C. 1078(c)) is further amended--
       (1) in paragraph (3)(A)(i)--
       (A) by striking ``in writing''; and
       (B) by inserting ``and documented in accordance with 
     paragraph (10)'' after ``approval of the insurer''; and
       (2) by adding at the end the following new paragraph:
       ``(10) Documentation of forbearance agreements.--For the 
     purposes of paragraph (3), the terms of forbearance agreed to 
     by the parties shall be documented by confirming the 
     agreement of the borrower by notice to the borrower from the 
     lender, and by recording the terms in the borrower's file.''.
       (f) Voluntary Flexible Agreements.--Section 428A(a) (20 
     U.S.C. 1078-1(a)) is further amended--
       (1) in paragraph (1)(B), by striking ``unless the 
     Secretary'' and all that follows through ``designated 
     guarantor'';
       (2) by striking paragraph (2);
       (3) by redesignating paragraph (3) as paragraph (2); and
       (4) by striking paragraph (4).
       (g) Fraud: Repayment Required.--Section 428B(a)(1) (20 
     U.S.C. 1078-2(a)(1)) is further amended--
       (1) by striking ``and'' at the end of subparagraph (A);
       (2) by redesignating subparagraph (B) as subparagraph (C); 
     and
       (3) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) in the case of a graduate or professional student or 
     parent who has been convicted of, or has pled nolo contendere 
     or guilty to, a crime involving fraud in obtaining funds 
     under this title, such graduate or professional student or 
     parent has completed the repayment of such funds to the 
     Secretary, or to the holder in the case of a loan under this 
     title obtained by fraud; and''.
       (h) Default Reduction Program.--Section 428F(a)(1) (20 
     U.S.C. 1078-6(a)(1)) is amended--
       (1) in subparagraph (A), by striking ``consecutive payments 
     for 12 months'' and inserting ``9 payments made within 20 
     days of the due date during 10 consecutive months'';
       (2) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (3) by inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) A guaranty agency may charge the borrower and retain 
     collection costs in an amount not to exceed 18.5 percent of 
     the outstanding principal and interest at the time of sale of 
     a loan rehabilitated under subparagraph (A).''.
       (j) Exceptional Performance Insurance Rate.--Section 
     428I(b)(1) (20 U.S.C. 1078-9(b)(1)) is amended--
       (1) in the heading, by striking ``100 percent'' and 
     inserting ``99 percent''; and
       (2) by striking ``100 percent of the unpaid'' and inserting 
     ``99 percent of the unpaid''.
       (k) Uniform Administrative and Claims Procedure.--Section 
     432(l)(1)(H) (20 U.S.C. 1082(l)(1)(H)) is amended by 
     inserting ``and anticipated graduation date'' after ``status 
     change''.
       (2) Section 428(a)(3)(A)(v) (20 U.S.C. 1078(a)(3)(A)(v)) is 
     amended--
       (A) by striking ``or'' at the end of subclause (I);
       (B) by striking the period at the end of subclause (II) and 
     inserting ``; or''; and
       (C) by adding after subclause (II) the following new 
     subclause:
       ``(III) in the case of a loan disbursed through an escrow 
     agent, 3 days before the first disbursement of the loan.''.
       (3) Section 428(c)(1)(A) (20 U.S.C. 1078(c)(1)(A)) is 
     amended by striking ``45 days'' in the last sentence and 
     inserting ``30 days''.
       (4) Section 428(i)(1) (20 U.S.C. 1078(i)(1)) is amended by 
     striking ``21 days'' in the third sentence and inserting ``10 
     days''.

     SEC. 8016. FUNDS FOR ADMINISTRATIVE EXPENSES.

       Section 458 is amended to read as follows:

     ``SEC. 458. FUNDS FOR ADMINISTRATIVE EXPENSES.

       ``(a) Administrative Expenses.--
       ``(1) Mandatory funds for fiscal year 2006.--For fiscal 
     year 2006, there shall be available to the Secretary, from 
     funds not otherwise appropriated, funds to be obligated for--
       ``(A) administrative costs under this part and part B, 
     including the costs of the direct student loan programs under 
     this part; and
       ``(B) account maintenance fees payable to guaranty agencies 
     under part B and calculated in accordance with subsections 
     (b) and (c),

     not to exceed (from such funds not otherwise appropriated) 
     $820,000,000 in fiscal year 2006.
       ``(2) Authorization for administrative costs beginning in 
     fiscal years 2007 through 2011.--For each of the fiscal years 
     2007 through 2011, there are authorized to be appropriated 
     such sums as may be necessary for administrative costs under 
     this part and part B, including the costs of the direct 
     student loan programs under this part.
       ``(3) Continuing mandatory funds for account maintenance 
     fees.--For each of the fiscal years 2007 through 2011, there 
     shall be available to the Secretary, from funds not otherwise 
     appropriated, funds to be obligated for account maintenance 
     fees payable to guaranty agencies under part B and calculated 
     in accordance with subsection (b).

[[Page H12684]]

       ``(4) Account maintenance fees.--Account maintenance fees 
     under paragraph (3) shall be paid quarterly and deposited in 
     the Agency Operating Fund established under section 422B.
       ``(5) Carryover.--The Secretary may carry over funds made 
     available under this section to a subsequent fiscal year.
       ``(b) Calculation Basis.--Account maintenance fees payable 
     to guaranty agencies under subsection (a)(3) shall not exceed 
     the basis of 0.10 percent of the original principal amount of 
     outstanding loans on which insurance was issued under part B.
       ``(c) Budget Justification.--No funds may be expended under 
     this section unless the Secretary includes in the Department 
     of Education's annual budget justification to Congress a 
     detailed description of the specific activities for which the 
     funds made available by this section have been used in the 
     prior and current years (if applicable), the activities and 
     costs planned for the budget year, and the projection of 
     activities and costs for each remaining year for which 
     administrative expenses under this section are made 
     available.''.

     SEC. 8017. COST OF ATTENDANCE.

       Section 472 (20 U.S.C. 1087ll) is amended--
       (1) by striking paragraph (4) and inserting the following:
       ``(4) for less than half-time students (as determined by 
     the institution), tuition and fees and an allowance for 
     only--
       ``(A) books, supplies, and transportation (as determined by 
     the institution);
       ``(B) dependent care expenses (determined in accordance 
     with paragraph (8)); and
       ``(C) room and board costs (determined in accordance with 
     paragraph (3)), except that a student may receive an 
     allowance for such costs under this subparagraph for not more 
     than 3 semesters or the equivalent, of which not more than 2 
     semesters or the equivalent may be consecutive;'';
       (2) in paragraph (11), by striking ``and'' after the 
     semicolon;
       (3) in paragraph (12), by striking the period and inserting 
     ``; and''; and
       (4) by adding at the end the following:
       ``(13) at the option of the institution, for a student in a 
     program requiring professional licensure or certification, 
     the one time cost of obtaining the first professional 
     credentials (as determined by the institution).''.

     SEC. 8018. FAMILY CONTRIBUTION.

       (a) Family Contribution for Dependent Students.--
       (1) Amendments.--Section 475 (20 U.S.C. 1087oo) is 
     amended--
       (A) in subsection (g)(2)(D), by striking ``$2,200'' and 
     inserting ``$3,000''; and
       (B) in subsection (h), by striking ``35'' and inserting 
     ``20''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply with respect to determinations of need for 
     periods of enrollment beginning on or after July 1, 2007.
       (b) Family Contribution for Independent Students Without 
     Dependents Other Than a Spouse.--
       (1) Amendments.--Section 476 (20 U.S.C. 1087pp) is 
     amended--
       (A) in subsection (b)(1)(A)(iv)--
       (i) in subclause (I), by striking ``$5,000'' and inserting 
     ``$6,050'';
       (ii) in subclause (II), by striking ``$5,000'' and 
     inserting ``$6,050''; and
       (iii) in subclause (III), by striking ``$8,000'' and 
     inserting ``$9,700''; and
       (B) in subsection (c)(4), by striking ``35'' and inserting 
     ``20''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply with respect to determinations of need for 
     periods of enrollment beginning on or after July 1, 2007.
       (c) Family Contribution for Independent Students With 
     Dependents Other Than a Spouse.--
       (1) Amendment.--Section 477(c)(4) (20 U.S.C. 1087qq(c)(4)) 
     is amended by striking ``12'' and inserting ``7''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply with respect to determinations of need for 
     periods of enrollment beginning on or after July 1, 2007.
       (d) Regulations; Updated Tables.--Section 478(b) (20 U.S.C. 
     1087rr(b)) is amended--
       (1) in paragraph (1), by adding at the end the following: 
     ``For the 2007-2008 academic year, the Secretary shall revise 
     the tables in accordance with this paragraph, except that the 
     Secretary shall increase the amounts contained in the table 
     in section 477(b)(4) by a percentage equal to the greater of 
     the estimated percentage increase in the Consumer Price Index 
     (as determined under the preceding sentence) or 5 percent.''; 
     and
       (2) in paragraph (2)--
       (A) by striking ``2000-2001'' and inserting ``2007-2008''; 
     and
       (B) by striking ``1999'' and inserting ``2006''.
       (e) Employment Expense Allowance.--Section 478(h) (20 
     U.S.C. 1087rr(h)) is amended--
       (1) by striking ``476(b)(4)(B),''; and
       (2) by striking ``meals away from home, apparel and upkeep, 
     transportation, and housekeeping services'' and inserting 
     ``food away from home, apparel, transportation, and household 
     furnishings and operations''.

     SEC. 8019. SIMPLIFIED NEED TEST AND AUTOMATIC ZERO 
                   IMPROVEMENTS.

       (a) Amendments.--Section 479 (20 U.S.C. 1087ss) is 
     amended--
       (1) in subsection (b)--
       (A) in paragraph (1)--
       (i) in subparagraph (A), by striking clause (i) and 
     inserting the following:
       ``(i) the student's parents--

       ``(I) file, or are eligible to file, a form described in 
     paragraph (3);
       ``(II) certify that the parents are not required to file a 
     Federal income tax return; or
       ``(III) received, or the student received, benefits at some 
     time during the previous 12-month period under a means-tested 
     Federal benefit program as defined under subsection (d); 
     and''; and

       (ii) in subparagraph (B), by striking clause (i) and 
     inserting the following:
       ``(i) the student (and the student's spouse, if any)--

       ``(I) files, or is eligible to file, a form described in 
     paragraph (3);
       ``(II) certifies that the student (and the student's 
     spouse, if any) is not required to file a Federal income tax 
     return; or
       ``(III) received benefits at some time during the previous 
     12-month period under a means-tested Federal benefit program 
     as defined under subsection (d); and''; and

       (B) in the matter preceding subparagraph (A) of paragraph 
     (3), by striking ``A student or family files a form described 
     in this subsection, or subsection (c), as the case may be, if 
     the student or family, respectively, files'' and inserting 
     ``In the case of an independent student, the student, or in 
     the case of a dependent student, the family, files a form 
     described in this subsection, or subsection (c), as the case 
     may be, if the student or family, as appropriate, files'';
       (2) in subsection (c)--
       (A) in paragraph (1)--
       (i) by striking subparagraph (A) and inserting the 
     following:
       ``(A) the student's parents--
       ``(i) file, or are eligible to file, a form described in 
     subsection (b)(3);
       ``(ii) certify that the parents are not required to file a 
     Federal income tax return; or
       ``(iii) received, or the student received, benefits at some 
     time during the previous 12-month period under a means-tested 
     Federal benefit program as defined under subsection (d); 
     and''; and
       (ii) by striking subparagraph (B) and inserting the 
     following:
       ``(B) the sum of the adjusted gross income of the parents 
     is less than or equal to $20,000; or''; and
       (B) in paragraph (2)--
       (i) by striking subparagraph (A) and inserting the 
     following:
       ``(A) the student (and the student's spouse, if any)--
       ``(i) files, or is eligible to file, a form described in 
     subsection (b)(3);
       ``(ii) certifies that the student (and the student's 
     spouse, if any) is not required to file a Federal income tax 
     return; or
       ``(iii) received benefits at some time during the previous 
     12-month period under a means-tested Federal benefit program 
     as defined under subsection (d); and''; and
       (ii) by striking subparagraph (B) and inserting the 
     following:
       ``(B) the sum of the adjusted gross income of the student 
     and spouse (if appropriate) is less than or equal to 
     $20,000.''; and
       (3) by adding at the end the following:
       ``(d) Definition of Means-Tested Federal Benefit Program.--
     In this section, the term `means-tested Federal benefit 
     program' means a mandatory spending program of the Federal 
     Government, other than a program under this title, in which 
     eligibility for the program's benefits, or the amount of such 
     benefits, are determined on the basis of income or resources 
     of the individual or family seeking the benefit, and may 
     include such programs as--
       ``(1) the supplemental security income program under title 
     XVI of the Social Security Act (42 U.S.C. 1381 et seq.);
       ``(2) the food stamp program under the Food Stamp Act of 
     1977 (7 U.S.C. 2011 et seq.);
       ``(3) the free and reduced price school lunch program 
     established under the Richard B. Russell National School 
     Lunch Act (42 U.S.C. 1751 et seq.);
       ``(4) the program of block grants for States for temporary 
     assistance for needy families established under part A of 
     title IV of the Social Security Act (42 U.S.C. 601 et seq.);
       ``(5) the special supplemental nutrition program for women, 
     infants, and children established by section 17 of the Child 
     Nutrition Act of 1966 (42 U.S.C. 1786); and
       ``(6) other programs identified by the Secretary.''.
       (b) Evaluation of Simplified Needs Test.--
       (1) Eligibility guidelines.--The Secretary of Education 
     shall regularly evaluate the impact of the eligibility 
     guidelines in subsections (b)(1)(A)(i), (b)(1)(B)(i), 
     (c)(1)(A), and (c)(2)(A) of section 479 of the Higher 
     Education Act of 1965 (20 U.S.C. 1087ss(b)(1)(A)(i), 
     (b)(1)(B)(i), (c)(1)(A), and (c)(2)(A)).
       (2) Means-tested federal benefit program.--For each 3-year 
     period, the Secretary of Education shall evaluate the impact 
     of including the receipt of benefits by a student or parent 
     under a means-tested Federal benefit program (as defined in 
     section 479(d) of the Higher Education Act of 1965 (20 U.S.C. 
     1087ss(d)) as a factor in determining eligibility under 
     subsections (b) and (c) of section 479 of the Higher 
     Education Act of 1965 (20 U.S.C. 1087ss(b) and (c)).

     SEC. 8020. ADDITIONAL NEED ANALYSIS AMENDMENTS.

       (a) Treating Active Duty Members of the Armed Forces as 
     Independent Students.--Section 480(d)(3) (20 U.S.C. 
     1087vv(d)(3)) is amended by inserting before the semicolon at 
     the end the following: ``or is currently serving on active 
     duty in the Armed Forces for other than training purposes''.
       (b) Definition of Assets.--Section 480(f)(1) (20 U.S.C. 
     1087vv(f)(1)) is amended by inserting ``qualified education 
     benefits (except as provided in paragraph (3)),'' after ``tax 
     shelters,''.
       (c) Treatment of Family Ownership of Small Businesses.--
     Section 480(f)(2) (20 U.S.C. 1087vv(f)(2)) is amended--
       (1) in subparagraph (A), by striking ``or'';
       (2) in subparagraph (B), by striking the period at the end 
     and inserting ``; or''; and
       (3) by adding at the end the following new subparagraph:

[[Page H12685]]

       ``(C) a small business with not more than 100 full-time or 
     full-time equivalent employees (or any part of such a small 
     business) that is owned and controlled by the family.''.
       (d) Additional Definitions.--Section 480(f) is further 
     amended by adding at the end the following new paragraphs:
       ``(3) A qualified education benefit shall not be considered 
     an asset of a student for purposes of section 475.
       ``(4) In determining the value of assets in a determination 
     of need under this title (other than for subpart 4 of part 
     A), the value of a qualified education benefit shall be--
       ``(A) the refund value of any tuition credits or 
     certificates purchased under a qualified education benefit; 
     and
       ``(B) in the case of a program in which contributions are 
     made to an account that is established for the purpose of 
     meeting the qualified higher education expenses of the 
     designated beneficiary of the account, the current balance of 
     such account.
       ``(5) In this subsection:
       ``(A) The term `qualified education benefit' means--
       ``(i) a qualified tuition program (as defined in section 
     529(b)(1)(A) of the Internal Revenue Code of 1986) or other 
     prepaid tuition plan offered by a State; and
       ``(ii) a Coverdell education savings account (as defined in 
     section 530(b)(1) of the Internal Revenue Code of 1986).
       ``(B) The term `qualified higher education expenses' has 
     the meaning given the term in section 529(e) of the Internal 
     Revenue Code of 1986.''.
       (e) Designated Assistance.--Section 480(j) (20 U.S.C. 
     1087vv(j)) is amended--
       (1) in the subsection heading, by striking ``; Tuition 
     Prepayment Plans'';
       (2) by striking paragraph (2);
       (3) by redesignating paragraph (3) as paragraph (2); and
       (4) by adding at the end the following new paragraph:
       ``(3) Notwithstanding paragraph (1) and section 472, 
     assistance not received under this title may be excluded from 
     both estimated financial assistance and cost of attendance, 
     if that assistance is provided by a State and is designated 
     by such State to offset a specific component of the cost of 
     attendance. If that assistance is excluded from either 
     estimated financial assistance or cost of attendance, it 
     shall be excluded from both.''.

     SEC. 8021. GENERAL PROVISIONS.

       (a) Academic Year.--Paragraph (2) of section 481(a) (20 
     U.S.C. 1088(a)) is amended to read as follows:
       ``(2)(A) For the purpose of any program under this title, 
     the term `academic year' shall--
       ``(i) require a minimum of 30 weeks of instructional time 
     for a course of study that measures its program length in 
     credit hours; or
       ``(ii) require a minimum of 26 weeks of instructional time 
     for a course of study that measures its program length in 
     clock hours; and
       ``(iii) require an undergraduate course of study to contain 
     an amount of instructional time whereby a full-time student 
     is expected to complete at least--
       ``(I) 24 semester or trimester hours or 36 quarter credit 
     hours in a course of study that measures its program length 
     in credit hours; or
       ``(II) 900 clock hours in a course of study that measures 
     its program length in clock hours.
       ``(B) The Secretary may reduce such minimum of 30 weeks to 
     not less than 26 weeks for good cause, as determined by the 
     Secretary on a case-by-case basis, in the case of an 
     institution of higher education that provides a 2-year or 4-
     year program of instruction for which the institution awards 
     an associate or baccalaureate degree.''.
       (b) Distance Education: Eligible Program.--Section 481(b) 
     (20 U.S.C. 1088(b)) is amended by adding at the end the 
     following new paragraphs:
       ``(3) An otherwise eligible program that is offered in 
     whole or in part through telecommunications is eligible for 
     the purposes of this title if the program is offered by an 
     institution, other than a foreign institution, that has been 
     evaluated and determined (before or after the date of 
     enactment of the Higher Education Reconciliation Act of 2005) 
     to have the capability to effectively deliver distance 
     education programs by an accrediting agency or association 
     that--
       ``(A) is recognized by the Secretary under subpart 2 of 
     part H; and
       ``(B) has evaluation of distance education programs within 
     the scope of its recognition, as described in section 
     496(n)(3).
       ``(4) For purposes of this title, the term `eligible 
     program' includes an instructional program that, in lieu of 
     credit hours or clock hours as the measure of student 
     learning, utilizes direct assessment of student learning, or 
     recognizes the direct assessment of student learning by 
     others, if such assessment is consistent with the 
     accreditation of the institution or program utilizing the 
     results of the assessment. In the case of a program being 
     determined eligible for the first time under this paragraph, 
     such determination shall be made by the Secretary before such 
     program is considered to be an eligible program.''.
       (c) Correspondence Courses.--Section 484(l)(1) (20 U.S.C. 
     1091(l)(1)) is amended--
       (1) in subparagraph (A)--
       (A) by striking ``for a program of study of 1 year or 
     longer''; and
       (B) by striking ``unless the total'' and all that follows 
     through ``courses at the institution''; and
       (2) by amending subparagraph (B) to read as follows:
       ``(B) Exception.--Subparagraph (A) shall not apply to an 
     institution or school described in section 3(3)(C) of the 
     Carl D. Perkins Vocational and Technical Education Act of 
     1998.''.

     SEC. 8022. STUDENT ELIGIBILITY.

       (a) Fraud: Repayment Required.--Section 484(a) (20 U.S.C. 
     1091(a)) is amended--
       (1) by striking the period at the end of paragraph (5) and 
     inserting ``; and''; and
       (2) by adding at the end the following new paragraph:
       ``(6) if the student has been convicted of, or has pled 
     nolo contendere or guilty to, a crime involving fraud in 
     obtaining funds under this title, have completed the 
     repayment of such funds to the Secretary, or to the holder in 
     the case of a loan under this title obtained by fraud.''.
       (b) Verification of Income Date.--Paragraph (1) of section 
     484(q) (20 U.S.C. 1091(q)) is amended to read as follows:
       ``(1) Confirmation with irs.--The Secretary of Education, 
     in cooperation with the Secretary of the Treasury, is 
     authorized to confirm with the Internal Revenue Service the 
     information specified in section 6103(l)(13) of the Internal 
     Revenue Code of 1986 reported by applicants (including 
     parents) under this title on their Federal income tax returns 
     for the purpose of verifying the information reported by 
     applicants on student financial aid applications.''.
       (c) Suspension of Eligibility for Drug Offenses.--Section 
     484(r)(1) (20 U.S.C. 1091(r)(1)) is amended by striking 
     everything preceding the table and inserting the following:
       ``(1) In general.--A student who is convicted of any 
     offense under any Federal or State law involving the 
     possession or sale of a controlled substance for conduct that 
     occurred during a period of enrollment for which the student 
     was receiving any grant, loan, or work assistance under this 
     title shall not be eligible to receive any grant, loan, or 
     work assistance under this title from the date of that 
     conviction for the period of time specified in the following 
     table:''.

     SEC. 8023. INSTITUTIONAL REFUNDS.

       Section 484B (20 U.S.C. 1091b) is amended--
       (1) in the matter preceding clause (i) of subsection 
     (a)(2)(A), by striking ``a leave of'' and inserting ``1 or 
     more leaves of'';
       (2) in subsection (a)(3)(B)(ii), by inserting ``(as 
     determined in accordance with subsection (d))'' after 
     ``student has completed'';
       (3) in subsection (a)(3)(C)(i), by striking ``grant or loan 
     assistance under this title'' and inserting ``grant 
     assistance under subparts 1 and 3 of part A, or loan 
     assistance under parts B, D, and E,'';
       (4) in subsection (a)(4), by amending subparagraph (A) to 
     read as follows:
       ``(A) In general.--After determining the eligibility of the 
     student for a late disbursement or post-withdrawal 
     disbursement (as required in regulations prescribed by the 
     Secretary), the institution of higher education shall contact 
     the borrower and obtain confirmation that the loan funds are 
     still required by the borrower. In making such contact, the 
     institution shall explain to the borrower the borrower's 
     obligation to repay the funds following any such 
     disbursement. The institution shall document in the 
     borrower's file the result of such contact and the final 
     determination made concerning such disbursement.'';
       (5) in subsection (b)(1), by inserting ``not later than 45 
     days from the determination of withdrawal'' after ``return'';
       (6) in subsection (b)(2), by amending subparagraph (C) to 
     read as follows:
       ``(C) Grant overpayment requirements.--
       ``(i) In general.--Notwithstanding subparagraphs (A) and 
     (B), a student shall only be required to return grant 
     assistance in the amount (if any) by which--

       ``(I) the amount to be returned by the student (as 
     determined under subparagraphs (A) and (B)), exceeds
       ``(II) 50 percent of the total grant assistance received by 
     the student under this title for the payment period or period 
     of enrollment.

       ``(ii) Minimum.--A student shall not be required to return 
     amounts of $50 or less.'';
       (7) in subsection (d), by striking ``(a)(3)(B)(i)'' and 
     inserting ``(a)(3)(B)''; and
       (8) in subsection (d)(2), by striking ``clock hours--'' and 
     all that follows through the period and inserting ``clock 
     hours scheduled to be completed by the student in that period 
     as of the day the student withdrew.''.

     SEC. 8024. COLLEGE ACCESS INITIATIVE.

       Part G is further amended by inserting after section 485C 
     (20 U.S.C. 1092c) the following new section:

     ``SEC. 485D. COLLEGE ACCESS INITIATIVE.

       ``(a) State-by-State Information.--The Secretary shall 
     direct each guaranty agency with which the Secretary has an 
     agreement under section 428(c) to provide to the Secretary 
     the information necessary for the development of Internet web 
     links and access for students and families to a comprehensive 
     listing of the postsecondary education opportunities, 
     programs, publications, Internet web sites, and other 
     services available in the States for which such agency serves 
     as the designated guarantor.
       ``(b) Guaranty Agency Activities.--
       ``(1) Plan and activity required.--Each guaranty agency 
     with which the Secretary has an agreement under section 
     428(c) shall develop a plan, and undertake the activity 
     necessary, to gather the information required under 
     subsection (a) and to make such information available to the 
     public and to the Secretary in a form and manner as 
     prescribed by the Secretary.
       ``(2) Activities.--Each guaranty agency shall undertake 
     such activities as are necessary to promote access to 
     postsecondary education for students through providing 
     information on college planning, career preparation, and 
     paying for college. The guaranty agency shall publicize such 
     information and coordinate such activities with other 
     entities that either provide or distribute such information 
     in the States for which such guaranty agency serves as the 
     designated guarantor.

[[Page H12686]]

       ``(3) Funding.--The activities required by this section may 
     be funded from the guaranty agency's Operating Fund 
     established pursuant to section 422B and, to the extent funds 
     remain, from earnings on the restricted account established 
     pursuant to section 422(h)(4).
       ``(4) Rule of construction.--Nothing in this subsection 
     shall be construed to require a guaranty agency to duplicate 
     any efforts under way on the date of enactment of the Higher 
     Education Reconciliation Act of 2005 that meet the 
     requirements of this section.
       ``(c) Access to Information.--
       ``(1) Secretary's responsibility.--The Secretary shall 
     ensure the availability of the information provided, by the 
     guaranty agencies in accordance with this section, to 
     students, parents, and other interested individuals, through 
     Internet web links or other methods prescribed by the 
     Secretary.
       ``(2) Guaranty agency responsibility.--The guaranty 
     agencies shall ensure that the information required by this 
     section is available without charge in printed format for 
     students and parents requesting such information.
       ``(3) Publicity.--Not later than 270 days after the date of 
     enactment of the Higher Education Reconciliation Act of 2005, 
     the Secretary and guaranty agencies shall publicize the 
     availability of the information required by this section, 
     with special emphasis on ensuring that populations that are 
     traditionally underrepresented in postsecondary education are 
     made aware of the availability of such information.''.

     SEC. 8026. WAGE GARNISHMENT REQUIREMENT.

       Section 488A(a)(1) (20 U.S.C. 1095a(a)(1)) is amended by 
     striking ``10 percent'' and inserting ``15 percent''.
                          Subtitle B--Pensions

     SEC. 8201. INCREASES IN PBGC PREMIUMS.

       (a) Flat-Rate Premiums.--
       (1) Single-employer plans.--
       (A) In general.--Clause (i) of section 4006(a)(3)(A) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1306(a)(3)(A)) is amended by striking ``$19'' and inserting 
     ``$30''.
       (B) Adjustment for inflation.--Section 4006(a)(3) of such 
     Act (29 U.S.C. 1306(a)(3)) is amended by adding at the end 
     the following new subparagraph:
       ``(F) For each plan year beginning in a calendar year after 
     2006, there shall be substituted for the premium rate 
     specified in clause (i) of subparagraph (A) an amount equal 
     to the greater of--
       ``(i) the product derived by multiplying the premium rate 
     specified in clause (i) of subparagraph (A) by the ratio of--
       ``(I) the national average wage index (as defined in 
     section 209(k)(1) of the Social Security Act) for the first 
     of the 2 calendar years preceding the calendar year in which 
     such plan year begins, to
       ``(II) the national average wage index (as so defined) for 
     2004; and
       ``(ii) the premium rate in effect under clause (i) of 
     subparagraph (A) for plan years beginning in the preceding 
     calendar year.

     If the amount determined under this subparagraph is not a 
     multiple of $1, such product shall be rounded to the nearest 
     multiple of $1.''.
       (2) Multiemployer plans.--
       (A) In general.--Section 4006(a)(3)(A) of such Act (29 
     U.S.C. 1306(a)(3)(A)) is amended--
       (i) in clause (iii)--

       (I) by inserting ``and before January 1, 2006,'' after 
     ``Act of 1980,''; and
       (II) by striking the period at the end and inserting ``, 
     or''; and

       (ii) by adding at the end the following:
       ``(iv) in the case of a multiemployer plan, for plan years 
     beginning after December 31, 2005, $8.00 for each individual 
     who is a participant in such plan during the applicable plan 
     year.''.
       (B) Adjustment for inflation.--Section 4006(a)(3) of such 
     Act (29 U.S.C. 1306(a)(3)), as amended by this subsection, is 
     amended by adding at the end the following new subparagraph:
       ``(G) For each plan year beginning in a calendar year after 
     2006, there shall be substituted for the premium rate 
     specified in clause (iv) of subparagraph (A) an amount equal 
     to the greater of--
       ``(i) the product derived by multiplying the premium rate 
     specified in clause (iv) of subparagraph (A) by the ratio 
     of--
       ``(I) the national average wage index (as defined in 
     section 209(k)(1) of the Social Security Act) for the first 
     of the 2 calendar years preceding the calendar year in which 
     such plan year begins, to
       ``(II) the national average wage index (as so defined) for 
     2004; and
       ``(ii) the premium rate in effect under clause (iv) of 
     subparagraph (A) for plan years beginning in the preceding 
     calendar year.
     If the amount determined under this subparagraph is not a 
     multiple of $1, such product shall be rounded to the nearest 
     multiple of $1.''.
       (b) Premium Rate for Certain Terminated Single-Employer 
     Plans.--Subsection (a) of section 4006 of such Act (29 U.S.C. 
     1306) is amended by adding at the end the following:
       ``(7) Premium Rate for Certain Terminated Single-Employer 
     Plans.--
       ``(A) In general.--If there is a termination of a single-
     employer plan under clause (ii) or (iii) of section 
     4041(c)(2)(B) or section 4042, there shall be payable to the 
     corporation, with respect to each applicable 12-month period, 
     a premium at a rate equal to $1,250 multiplied by the number 
     of individuals who were participants in the plan immediately 
     before the termination date. Such premium shall be in 
     addition to any other premium under this section.
       ``(B) Special rule for plans terminated in bankruptcy 
     reorganization.--In the case of a single-employer plan 
     terminated under section 4041(c)(2)(B)(ii) or under section 
     4042 during pendency of any bankruptcy reorganization 
     proceeding under chapter 11 of title 11, United States Code, 
     or under any similar law of a State or a political 
     subdivision of a State (or a case described in section 
     4041(c)(2)(B)(i) filed by or against such person has been 
     converted, as of such date, to such a case in which 
     reorganization is sought), subparagraph (A) shall not apply 
     to such plan until the date of the discharge or dismissal of 
     such person in such case.
       ``(C) Applicable 12-month period.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--The term `applicable 12-month period' 
     means--
       ``(I) the 12-month period beginning with the first month 
     following the month in which the termination date occurs, and
       ``(II) each of the first two 12-month periods immediately 
     following the period described in subclause (I).
       ``(ii) Plans terminated in bankruptcy reorganization.--In 
     any case in which the requirements of subparagraph (B)(i)(I) 
     are met in connection with the termination of the plan with 
     respect to 1 or more persons described in such subparagraph, 
     the 12-month period described in clause (i)(I) shall be the 
     12-month period beginning with the first month following the 
     month which includes the earliest date as of which each such 
     person is discharged or dismissed in the case described in 
     such clause in connection with such person.
       ``(D) Coordination with section 4007.--
       ``(i) Notwithstanding section 4007--
       ``(I) premiums under this paragraph shall be due within 30 
     days after the beginning of any applicable 12-month period, 
     and
       ``(II) the designated payor shall be the person who is the 
     contributing sponsor as of immediately before the termination 
     date.
       ``(ii) The fifth sentence of section 4007(a) shall not 
     apply in connection with premiums determined under this 
     paragraph.
       ``(E) Termination.--Subparagraph (A) shall not apply with 
     respect to any plan terminated after December 31, 2010.''.
       (c) Conforming Amendment.--Section 4006(a)(3)(B) of such 
     Act (29 U.S.C. 1306(a)(3)(B)) is amended by striking 
     ``subparagraph (A)(iii)'' and inserting ``clause (iii) or 
     (iv) of subparagraph (A)''.
       (d) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to plan years beginning after December 31, 2005.
       (2) Premium rate for certain terminated single-employer 
     plans.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendment made by subsection (b) shall apply to plans 
     terminated after December 31, 2005.
       (B) Special rule for plans terminated in bankruptcy.--The 
     amendment made by subsection (b) shall not apply to a 
     termination of a single-employer plan that is terminated 
     during the pendency of any bankruptcy reorganization 
     proceeding under chapter 11 of title 11, United States Code 
     (or under any similar law of a State or political subdivision 
     of a State), if the proceeding is pursuant to a bankruptcy 
     filing occurring before October 18, 2005.
                      TITLE IX--LIHEAP PROVISIONS

     SECTION 9001. FUNDING AVAILABILITY.

       (a) In General.--In addition to amounts otherwise made 
     available, there are appropriated, out of any money in the 
     Treasury not otherwise appropriated, to the Secretary of 
     Health and Human Services for a 1-time only obligation and 
     expenditure--
       (1) $250,000,000 for fiscal year 2007 for allocation under 
     section 2604(a) through (d) of the Low-Income Home Energy 
     Assistance Act of 1981 (42 U.S.C. 8623(a) through (d)); and
       (2) $750,000,000 for fiscal year 2007 for allocation under 
     section 2604(e) of the Low-Income Home Energy Assistance Act 
     of 1981 (42 U.S.C. 8623(e)).
       (b) Sunset.--The provisions of this section shall 
     terminate, be null and void, and have no force and effect 
     whatsoever after September 30, 2007. No monies provided for 
     under this section shall be available after such date.

                 TITLE X--JUDICIARY RELATED PROVISIONS
                  Subtitle A--Civil Filing Adjustments

     SEC. 10001. CIVIL CASE FILING FEE INCREASES.

       (a) Civil Actions Filed in District Courts.--Section 
     1914(a) of title 28, United States Code, is amended by 
     striking ``$250'' and inserting ``$350''.
       (b) Appeals Filed in Courts of Appeals.--The $250 fee for 
     docketing a case on appeal or review, or docketing any other 
     proceeding, in a court of appeals, as prescribed by the 
     Judicial Conference, effective as of January 1, 2005, under 
     section 1913 of title 28, United States Code, shall be 
     increased to $450.
       (c) Expenditure Limitation.--Incremental amounts collected 
     by reason of the enactment of this section shall be deposited 
     in a special fund in the Treasury to be established after the 
     enactment of this Act. Such amounts shall be available for 
     the purposes specified in section 1931(a) of title 28, United 
     States Code, but only to the extent specifically appropriated 
     by an Act of Congress enacted after the enactment of this 
     Act.
       (d) Effective Date.--This section and the amendment made by 
     this section shall take effect 60 days after the date of the 
     enactment of this Act.
                      Subtitle B--Bankruptcy Fees

     SEC. 10002. BANKRUPTCY FEES.

       (a) Bankruptcy Filing Fees.--Section 1930(a) of title 28, 
     United States Code, is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (A) by striking ``$220'' and inserting 
     ``$245''; and
       (B) in subparagraph (B) by striking ``$150'' and inserting 
     ``$235''; and
       (2) in paragraph (2) by striking ``$1,000'' and inserting 
     ``$2,750''.

[[Page H12687]]

       (b) Expenditure Limitation.--Incremental amounts collected 
     by reason of the amendments made by subsection (a) shall be 
     deposited in a special fund in the Treasury to be established 
     after the enactment of this Act. Such amounts shall be 
     available for the purposes specified in section 1931(a) of 
     title 28, United States Code, but only to the extent 
     specifically appropriated by an Act of Congress enacted after 
     the enactment of this Act.
       (c) Effective Date.--This section and the amendments made 
     by this section shall take effect 60 days after the date of 
     the enactment of this Act.
       And the House agree to the same.

     For consideration of the Senate bill, and the House amendment 
     thereto, and modifications committed to conference:
     Jim Nussle,
     Jim Ryun,
     Ander Crenshaw,
     Adam Putnam,
     Roger F. Wicker,
     Kenny C. Hulshof,
     Paul Ryan,
     Roy Blunt,
     Tom DeLay,
     From the Committee on Agriculture, for consideration of title 
     I of the Senate bill and title I of the House amendment, and 
     modifications committed to conference:
     Bob Goodlatte,
     Frank D. Lucas,
     From the Committee on Education and the Workforce, for 
     consideration of title VII of the Senate bill and title II 
     and subtitle C of title III of the House amendment, and 
     modifications committed to conference:
     John Boehner,
     Howard P. McKeon,
     From the Committee on Energy and Commerce, for consideration 
     of title III and title VI of the Senate bill and title III of 
     the House amendment, and modifications committed to 
     conference:
     Joe Barton,
     Nathan Deal,
     From the Committee on Financial Services, for consideration 
     of title II of the Senate bill and title IV of the House 
     amendment, and modifications committed to conference:
     Michael G. Oxley,
     Spencer Baucus,
       (Provided that Mr. Ney is appointed in lieu of Mr. Bachus 
     for consideration of subtitles C and D of title II of the 
     Senate bill and subtitle B of title IV of the House 
     amendment:)
     From the Committee on the Judiciary, for consideration of 
     title VII of the senate bill and title V of the House 
     amendment, and modifications committed to conference:
     F. James Sensenbrenner, Jr.,
     Lamar Smith,
     From the Committee on Resources, for consideration of title 
     IV of the Senate bill and title VI of the House amendment, 
     and modifications committed to conference:
     Richard Pombo,
     Jim Gibbons,
     From the Committee on Transportation and Infrastructure, for 
     consideration of title V and division A of the Senate bill 
     and title VII of the House amendment, and modifications 
     committed to conference:
     Don Young,
     Frank LoBiondo,
     From the Committee on Ways and Means, for consideration of 
     sections 6039, 6071, and subtitle B of title VI of the Senate 
     bill and title VIII of the House amendment, and modifications 
     committed to conference:
     William Thomas,
     Wally Herger,
                                Managers on the Part of the House.

     Judd Gregg,
     Pete Domenici,
     Chuck Grassley,
     Michael B. Enzi,
     Wayne Allard,
     Jeff Sessions,
     Ted Stevens,
     Richard Shelby,
     Arlen Specter,
     Saxby Chambliss,
     Mitch McConnell,
                               Managers on the Part of the Senate.

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendment of the House to the bill (S. 1932), to provide for 
     reconciliation pursuant to section 202(a) of the concurrent 
     resolution on the budget for fiscal year 2006 (H. Con. Res. 
     95), submit the following joint statement to the House and 
     the Senate in explanation of the effect of the action agreed 
     upon by the managers and recommended in the accompanying 
     conference report:
       The House amendment struck all of the Senate bill after the 
     enacting clause and inserted a substitute text:
       The Senate recedes from its disagreement to the amendment 
     of the House with an amendment that is a substitute for the 
     Senate bill and the House amendment. The differences between 
     the Senate bill, the House amendment, and the substitute 
     agreed to in conference are noted below, except for clerical 
     corrections, conforming changes made necessary by agreements 
     reached by the conferees, and minor drafting and clarifying 
     changes.
       The managers representing authorizing committees submitted 
     separate joint statements explaining the provisions within 
     their respective jurisdictions: Committee on Agriculture, 
     Committee on Education and the Workforce, Committee on Energy 
     and Commerce, Committee on Financial Services, Committee on 
     Transportation and Infrastructure, Committee on Ways and 
     Means.

                   Title I--Committee on Agriculture

     (1) Short title
       The Senate bill cites this Title as the ``Agricultural 
     Reconciliation Act of 2005.'' (Section 1001)
       The House amendment cites this Title as the ``Agricultural 
     Reconciliation Act of 2005'' and contains a table of 
     contents. (Section 1001)
       The Conference substitute adopts the Senate provision.

                     Subtitle A--Commodity Programs

     (2) Reduction of commodity program payments
       The Senate bill adds a new section to Title I of the Farm 
     Security and Rural Investment Act to reauthorize direct 
     payments, counter-cyclical payments and marketing assistance 
     loans through 2011 and reduce these program payments 2.5 
     percent for crop years 2006 through 2010. It also reduces by 
     2.5 percent payments to dairy producers pursuant to section 
     1502 of the Farm Security and Rural Investment Act (known as 
     ``MILC'') during the period of October 1, 2005, through 
     September 30, 2007. The reauthorization does not include 
     1104(f) and 1304(g) which specify the times at which the 
     Secretary is required to make partial counter-cyclical 
     payments. It also does not include section 1307(a)(6) which 
     requires the Secretary to pay storage, handling, and other 
     costs for peanut crops. Further, the Senate bill extends the 
     period during which the prevailing world market price for 
     upland cotton must be further adjusted to July 31, 2012, and 
     extends the extra long staple competitiveness program through 
     July 31, 2012. (Section 1101)
       The House amendment amends section 1103 of the Farm 
     Security and Rural Investment Act to reduce the total amount 
     of direct payments to be paid to producers of covered 
     commodities by 1 percent for crop years 2006 and 2007, and 
     for crop years 2008 and 2009 if direct payments are made in 
     these years. The House amendment also amends section 1303 of 
     the Farm Security and Rural Investment Act to reduce the 
     total amount of the direct payments to be paid to producers 
     of peanuts by 1 percent for crop years 2006 and 2007, and for 
     crop years 2008 and 2009 if direct payments are made in these 
     years. (Section 1101)
       The Conference substitute adopts neither provision.
     (3) Forfeiture penalty for nonrecourse sugar loans
       The Senate bill amends the Federal Agriculture Improvement 
     and Reform (FAIR) Act of 1996 to require that a penalty be 
     assessed on the forfeiture of any sugar from the 2006 through 
     2010 crops of sugar beets and sugarcane pledged as collateral 
     for a nonrecourse loan. It provides that the penalty is 1.2 
     percent of the loan rate established under section 156 of the 
     FAIR Act. Further, it reduces payments owed to a producer by 
     a processor that forfeits sugar pledged as collateral in 
     proportion to the penalty incurred by the processor. (Section 
     1102)
       The House amendment has no comparable provision.
       The Conference substitute deletes the Senate provision.
     (4) Cotton competitiveness provisions
       The Senate bill amends the Farm Security and Rural 
     Investment Act to eliminate authority for the establishment 
     of the upland cotton user marketing certificate program known 
     as ``Step 2.'' It also repeals section 136 of the Federal 
     Agriculture Improvement and Reform Act of 1996 which has 
     duplicate language for the establishment of Step 2. Further, 
     it provides that the above amendments take effect on August 
     1, 2006. (Section 1103)
       The House amendment has identical language. (Section 1103)
       The Conference substitute adopts the Senate provision with 
     an amendment that eliminates the language repealing section 
     136 of the Federal Agriculture Improvement and Reform Act of 
     1996.
     (5) National dairy market loss payments
       The Senate bill amends the MILC Program (section 1502 of 
     the Farm Security and Rural Investment Act) by extending 
     until September 30, 2007, the period during which the 
     Secretary must offer to enter into contracts with producers. 
     It also includes a new provision that decreases the 
     multiplier used to calculate payments from 45 percent to 34 
     percent during the period of October 1, 2005, through 
     September 30, 2007. In addition it extends until September 
     30, 2007, the period during which eligible production must be 
     covered in any contract entered into by a producer. It also 
     strikes section 1502(h) of the Farm Security and Rural 
     Investment Act and strikes an obsolete reference to section 
     1502. (Section 1104)
       The House amendment has no comparable provision.
       The Conference substitute adopts the Senate provision with 
     an amendment that will decrease the multiplier used to 
     calculate payments from 45 percent to 34 percent during the 
     period from October 1, 2005, through August 31, 2007, and 
     from 34 percent to 0 percent after September 1, 2007.

[[Page H12688]]

     (6) Advance direct payments
       The Senate bill reduces the direct payment amounts that 
     producers are eligible to receive in advance for the 2006 
     through 2011 crop years. It gives producers the option of 
     receiving up to 40 percent of their direct payments in 
     advance for the 2006 crop year and up to 20 percent of their 
     direct payments in advance for any of the 2007 through 2011 
     crop years.
       The Senate bill provides for a corresponding reduction in 
     the direct payment amount that peanut producers may receive 
     in advance for any of the 2006 through 2011 crop years. It 
     gives peanut producers the option of receiving up to 40 
     percent of their direct payments in advance for the 2006 crop 
     year and up to 29 percent of their direct payments in advance 
     for any of the 2007 through 2011 crop years. (Section 1105)
       The House amendment reduces the direct payment amounts that 
     producers are eligible to receive in advance for the 2006 and 
     2007 crop years. It gives producers the option of receiving 
     up to 40 percent of their direct payments in advance for the 
     2006 and 2007 crop years.
       The House amendment provides for a corresponding reduction 
     in the direct payment amounts that producers of peanuts are 
     eligible to receive in advance for the 2006 and 2007 crop 
     years. It gives peanut producers the option of receiving up 
     to 40 percent of their direct payments in advance for the 
     2006 and 2007 crop years. (Section 1102)
       The Conference substitute adopts the House provision with 
     an amendment that reduces the direct payment amounts that 
     producers are eligible to receive in advance from 50 percent 
     to 40 percent for the 2006 crop year and to 22 percent for 
     the 2007 crop year. Advance direct payments to peanut 
     producers are reduced in an identical fashion.

                        Subtitle B--Conservation

     (7) Conservation reserve program
       The Senate bill extends the Conservation Reserve Program 
     (CRP) through 2011. It decreases the amount of acres that the 
     Secretary is authorized to maintain in the conservation 
     reserve program to 36.4 million acres through calendar year 
     2010, and 38.3 million acres in 2011. It extends the period 
     during which the Secretary may enroll acres, and it extends 
     the requirement to enroll wetland and buffer acreage in 
     reserve through 2011.
       It also requires the Secretary, in implementing the 
     amendments made by this section, to achieve the new maximum 
     acreage enrollment limit not later than 2 years after the 
     date of enactment of the bill without affecting conservation 
     reserve existing contracts. (Section 1201)
       The House amendment has no comparable provision.
       The Conference substitute deletes the Senate provision.
     (8) Conservation security program
       The Senate bill extends the authorization for the 
     Conservation Security Program (CSP) through 2011. It strikes 
     the current limitation on funding and inserts a new 
     limitation with two restraints. The new limits are 
     $1,954,000,000 for fiscal years 2006 through 2010 and 
     $5,200,000,000 for fiscal years 2006 through 2015. (Section 
     1202).
       The House amendment extends the authorization for the 
     Conservation Security Program through 2011, strikes the 
     current limitation on funding and inserts a new limitation 
     with two restraints. The new limits are $2,213,000,000 for 
     fiscal years 2006 through 2010 and $5,729,000,000 for fiscal 
     years 2006 through 2015. (Section 1202)
       The Conference substitute adopts the Senate provision with 
     an amendment that provides for a limit of $5,650,000,000 for 
     fiscal years 2006 through 2015.
     (9) Environmental quality incentives program
       The Senate bill extends the authorization for the 
     Environmental Quality Incentives Program (EQIP) through 2011, 
     and extends the aggregate payment limit for all EQIP payments 
     through 2011. It also amends the funding provisions to 
     provide: $1,017,000,000 for fiscal year 2005; $1,185,000,000 
     for fiscal year 2006; $1,270,000,000 for fiscal year 2007 
     through 2010; and $1,300,000,000 for fiscal year 2011. 
     (Section 1203)
       The House amendment has no comparable provision.
       The Conference substitute adopts the Senate provision with 
     an amendment that provides for $1,270,000,000 in each of 
     fiscal years 2007 and 2009 and $1,300,000,000 in fiscal year 
     2010, limits payments under this program to $450,000 during 
     any six-year period, and extends the authorization for EQIP 
     through fiscal year 2010.
     (10) Limitation on use of Commodity Credit Corporation funds 
         to carry out watershed rehabilitation program
       The Senate bill has no comparable provision.
       The House amendment removes the requirement that funds for 
     the watershed rehabilitation program remain available to the 
     Secretary until expended. It reduces funding for the 
     watershed rehabilitation program by $15 million in fiscal 
     year 2007, and it rescinds funds that are previously made 
     available and are unobligated as of September 30, 2006. 
     (Section 1201)
       The Conference substitute adopts the House provision with 
     an amendment that cancels the authority to obligate funds 
     previously made available for a fiscal year and unobligated 
     as of October 1, 2006, but permits funding to remain 
     available until expended and maintains funding at $65,000,000 
     for fiscal year 2007.
     (11) Limitation on use of Commodity Credit Corporation funds 
         to carry out the agricultural management assistance 
         program
       The Senate bill has no comparable provision.
       The House amendment eliminates funding for the agricultural 
     management assistance program in 2007. (Section 1203)
       The Conference substitute deletes the House provision.

                Subtitle C--Miscellaneous (Senate Bill)

                 Subtitle E--Research (House Amendment)

     (12) Initiative for future agriculture and food systems
       The Senate bill reduces the amount of funds the Secretary 
     is required to transfer on October 1, 2005, to $104 million 
     and on October 1, 2006 through 2009 to $130 million. It 
     provides $200,000,000 of funding in 2010 and in subsequent 
     fiscal years, and provides that the amendments take effect on 
     October 1, 2005. (Section 1301)
       The House amendment eliminates funding for the Initiative 
     for Future Agriculture and Food Systems in fiscal years 2007, 
     2008, and 2009. It provides $200,000,000 of funding in 2010 
     and in subsequent fiscal years, and limits availability of 
     fiscal year 2006 funds to the one year period beginning on 
     October 1, 2005, while maintaining the two-year period of 
     availability for funds made available in other fiscal years. 
     (Section 1501)
       The Conference substitute adopts the House provision.

                           Subtitle C--Energy

     (13) Termination of use of commodity credit funds to carry 
         out renewable energy systems and energy efficiency 
         improvement program
       The Senate bill has no comparable provision.
       The House amendment eliminates the requirement that the 
     Secretary make funding available for loans and grants under 
     the renewable energy systems and energy efficiency 
     improvements program. (Section 1301)
       The Conference substitute adopts the House provision with 
     an amendment that maintains $3,000,000 of funding for this 
     program in fiscal year 2007.

                     Subtitle D--Rural Development

     (14) Enhanced access to broadband telecommunication services 
         in rural areas
       The Senate bill has no comparable provision.
       The House amendment eliminates the requirement that the 
     Secretary provide loans for enhanced broadband access in 
     fiscal year 2007, prohibits funding for this program from 
     remaining available until expended, and rescinds all funding 
     that is available and unobligated as of September 30, 2006. 
     (Section 1401)
       The Conference substitute adopts the House provision with 
     an amendment that cancels funding previously made available 
     for a fiscal year and unobligated as of October 1, 2006, but 
     permits funding to remain available until expended and 
     maintains the funding for fiscal year 2007.
     (15) Value-added agricultural product market development 
         grants
       The Senate bill has no comparable provision.
       The House amendment eliminates funding for value-added 
     agricultural product grants in fiscal year 2007, prohibits 
     funding for this program from remaining available until 
     expended, and rescinds all funding that is available and 
     unobligated as of September 30, 2006. (Section 1402)
       The Conference substitute adopts the House provision with 
     an amendment that cancels funding previously made available 
     for a fiscal year and unobligated as of October 1, 2006, but 
     permits funding to remain available until expended and 
     maintains the funding for fiscal year 2007.
     (16) Rural business investment program
       The Senate bill has no comparable provision.
       The House amendment eliminates funding for the rural 
     business investment program in fiscal year 2007, prohibits 
     funding for this program from remaining available until 
     expended, and rescinds all funding that is available and 
     unobligated as of September 30, 2006. (Section 1403).
       The Conference substitute adopts the House provision with 
     an amendment that eliminates funding in fiscal year 2007 and 
     rescinds all funding that is available and unobligated as of 
     October 1, 2006, but permits funding to remain available 
     until expended.
     (17) Rural business strategic investment grants
       Senate bill has no comparable provision.
       The House amendment eliminates funding for rural business 
     strategic investment grants in fiscal year 2007 and rescinds 
     all funding that is available and unobligated as of September 
     30, 2006. (Section 1404)
       The Conference substitute adopts the House provision with 
     an amendment that cancels funding previously made for a 
     fiscal year and unobligated as of October 1, 2006, but 
     maintains the funding for fiscal year 2007.
     (18) Rural firefighters and emergency personnel grants
       The Senate bill has no comparable provision.
       The House amendment eliminates funding for rural 
     firefighter and emergency personnel grants in fiscal year 
     2007, prohibits funding for this program from remaining 
     available until expended, and rescinds all

[[Page H12689]]

     funding that is available and unobligated as of September 30, 
     2006. (Section 1405).
       The Conference substitute adopts the House provision with 
     an amendment that permits funding to remain available until 
     expended, but eliminates funding in fiscal year 2007, and 
     rescinds all funding that is available and unobligated as of 
     October 1, 2006.

                         Subtitle F--Nutrition

     (19) Eligible households
       The Senate bill has no comparable provision.
       The House amendment amends the Food Stamp Act to restrict 
     categorical eligibility status, during fiscal years 2006 
     through 2010, to only those households in which each member 
     receives cash benefits under the Temporary Assistance for 
     Needy Families program (TANF). It provides an exception to 
     the ``cash benefits'' rule for households in which each 
     member receives substantial and ongoing non-cash benefits 
     under TANF. It further provides that such non-cash benefits 
     must be provided for purposes of shelter, utilities, child 
     care, health care, transportation, or job training, and it 
     requires that such households must have a monthly income that 
     does not exceed 150 percent of the poverty line.
       The House amendment reauthorizes provisions in the Food 
     Stamp Act through 2011 (except assistance for community food 
     projects (section 25(b)) and innovative programs for 
     addressing common community problems (section 25(h)). It also 
     amends the eligibility categories for free school lunch and 
     breakfast to provide a new eligibility category that will 
     include a child who is a member of a household: (1) in which 
     each member receives or is eligible to receive non-cash or 
     in-kind benefits under TANF; and (2) that has a gross monthly 
     income at or below 200 percent of the Federal poverty level. 
     (Section 1601)
       The Conference substitute deletes the House provision.
     (20) Availability of commodities for the emergency food 
         assistance program
       The Senate bill has no comparable provision.
       The House amendment reauthorizes the purchase of 
     $140,000,000 worth of commodities per year for the Emergency 
     Food Assistance Program through 2011, and it authorizes the 
     purchase of an additional $12,000,000 worth of commodities in 
     2006 to be distributed to States affected by Hurricanes 
     Katrina and Rita. (Section 1602)
       The Conference substitute deletes the House provision.
     (21) Residency requirement
       The Senate bill has no comparable provision.
       The House amendment amends the Personal Responsibility and 
     Work Opportunity Reconciliation Act to require that, until 
     fiscal year 2010, non-citizens must reside in the U.S. for 7 
     years or more before becoming eligible for food stamp 
     benefits. It provides an exemption, however, for aliens who 
     currently receive food stamp benefits and who are 60 years of 
     age or older or have petitioned for naturalization as a U.S. 
     citizen. It also provides that on October 1, 2010, these 
     provisions will expire. (Section 1603)
       The Conference substitute deletes the House provision.
     (22) Disaster food stamp program
       The Senate bill has no comparable provision.
       The House amendment authorizes the Secretary of Agriculture 
     to pay to state agencies 100 percent of the administrative 
     costs incurred in the delivery of food stamp benefits under 
     the disaster food stamp program initiated in response to 
     Hurricanes Katrina and Rita (Section 1604)
       The Conference substitute deletes the House provision.

Title II--Senate Committee on Banking and House Committee on Financial 
                                Services

                   Subtitle A--FHA Asset Disposition


       Summary of FHA Reconciliation language (December 15, 2005)

       The House Financial Services and Senate Banking Committees 
     approved reconciliation language that will make several FHA 
     multifamily authorities subject to appropriations. This move 
     to discretionary spending will enable the Administration and 
     Congress to set the level of activity for these FHA 
     authorities and better control their use. This legislation 
     authorizes $100 million to be appropriated for fiscal year 
     2006 to make these reforms.
     Bill Summary
       Originally proposed in the President's budget, the FHA 
     Asset Disposition Act of 2005 will make several FHA 
     multifamily authorities subject to appropriations, including 
     (1) discount property sales; (2) discount loan sales; and (3) 
     up-front grant assistance.
       The Congressional Budget Office estimate of total savings 
     in outlays are as follows (in millions):

------------------------------------------------------------------------
  FY 2006      FY 2007      FY 2008     FY 2009     FY 2010      Total
------------------------------------------------------------------------
       $30          $60         $60         $60         $60        $270
------------------------------------------------------------------------

       The savings from this proposal, taken together with Deposit 
     Insurance Reform, constitute the reconciliation 
     recommendations of the House Financial Services and Senate 
     Banking Committees. Together the proposals will save an 
     estimated $520 million over fiscal years 2006-10, with $30 
     million in fiscal 2006. This amount is the savings target for 
     these committees contemplated in the budget resolution.
     Background
       Since 1934, FHA and HUD have insured almost 33 million home 
     mortgages and multifamily project mortgages. Within HUD, FHA 
     provides mortgage insurance to lenders to protect against 
     losses as a result of borrower default. Currently, FHA has 
     the authority to sell, at below-market rates, properties 
     taken over by the agency because of mortgage defaults. FHA 
     also has the authority to sell discount loans. This 
     legislation will make these mandatory authorities 
     discretionary and subject to appropriations. Additionally, 
     FHA can provide up-front grants to rehabilitate dilapidated 
     multifamily properties. Funding for the grants currently 
     comes from the General Insurance Fund, which collects money 
     from premiums and servicing of insured mortgages. The amount 
     spent on the grants is left to the discretion of FHA. Under 
     this legislation, funding for these grants will no longer be 
     drawn from the General Insurance Fund and would be subject to 
     appropriations. Finally, this proposal is effective during 
     fiscal years 2006 through 2010.

                     Subtitle B--Deposit Insurance


             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

     Section 2101. Short title; table of contents
       This section establishes the short title of the subtitle, 
     the `Federal Deposit Insurance Reform Act of 2005,' and 
     provides a table of contents.
     Section 2102. Merging the BIF and SAIF
       This section amends provisions of the Federal Deposit 
     Insurance Act to merge the Bank Insurance Fund and the 
     Savings Association Insurance Fund no later than the first 
     day of the first calendar quarter that begins after the end 
     of the 90-day period beginning on the date of the enactment 
     of this Act.
     Section 2103. Increase in deposit insurance coverage
       This section provides for an inflation index for general 
     depositors and a higher level of deposit insurance coverage 
     for certain individual retirement accounts. Credit unions are 
     provided with complete parity in coverage with other insured 
     depository institutions.
       The section also retains the $100,000 deposit insurance 
     limit on accounts at insured depository institutions, to be 
     known as the ``standard maximum deposit insurance amount,'' 
     subject to future cost of living adjustments.
       Beginning April 1, 2010, and every succeeding five years, 
     the Board of Directors of the FDIC and the National Credit 
     Union Administration Board shall jointly determine whether an 
     increase in the standard maximum deposit insurance is 
     appropriate after considering certain factors. If 
     appropriate, the new standard maximum deposit insurance limit 
     would be increased by a cost of living adjustment. This 
     adjustment would be calculated according to the Personal 
     Consumption Expenditures Chain-Type Index (PCE) published by 
     the Department of Commerce and rounded down to the nearest 
     $10,000. The FDIC and National Credit Union Administration 
     (NCUA) Boards of Directors are required to publish the new 
     standard maximum deposit insurance amount in the Federal 
     Register and provide a corresponding report to Congress by 
     April 5, 2010, and April 5 of every succeeding fifth year. 
     The approved adjustment in the standard maximum deposit 
     insurance amount would automatically occur unless a 
     Congressional act provides otherwise and would take effect on 
     January 1 of the year immediately succeeding the calendar 
     year in which the new amount is calculated.
       The section also provides pass-through coverage to certain 
     employee benefit plans, even if the institution is not 
     authorized to accept employee benefit plan deposits because 
     it is not well-capitalized or adequately capitalized.
       The section also increases the deposit insurance limit for 
     certain retirement accounts to $250,000, also subject to 
     future cost-of-living adjustments.
     Section 2104. Setting assessments and repeal of special rules 
         relating to minimum assessments and free deposit 
         insurance
       This section allows the FDIC Board to set assessments in 
     such amounts as it may determine to be necessary or 
     appropriate. This provision also eliminates the existing 
     restrictions on the FDIC's authority to levy assessments on 
     any institution above amounts needed to achieve and maintain 
     the existing DRR of 1.25 percent. The minimum statutory rate 
     (23 basis point cliff rate) applicable in certain 
     circumstances is eliminated.
       This section also provides that under the FDIC's risk-based 
     assessment system, no depository institution shall be barred 
     from the lowest-risk category solely because of size.
       The section also requires insured depository institutions 
     to maintain all records that the FDIC may require for 
     verifying the accuracy of any assessment for 3 years or, in 
     the case of disputed assessments, until the dispute has been 
     resolved, and increases the fees that the FDIC can impose for 
     late payments of premium assessments from $100 to 1 percent 
     of assessments per day, for institutions with assessments 
     greater than $10,000. Institutions with assessments lower 
     than $10,000 would face a maximum penalty of $100 for each 
     day they were delinquent in paying their premium assessments.

[[Page H12690]]

       The bill repeals a number of provisions requiring the FDIC 
     to set premiums on a semiannual basis, replacing them with a 
     provision granting the FDIC greater flexibility in the timing 
     of those evaluations.
     Section 2105. Replacement of fixed designated reserve ratio 
         with reserve range
       This section eliminates the current 1.25 percent `hard 
     target' DRR and provides the FDIC Board with the discretion 
     to set the DRR within a range of 1.15 to 1.50 percent for any 
     given year, using the following criteria as a basis for 
     making these determinations: (1) present and future risk of 
     losses to the deposit insurance fund; (2) economic 
     conditions; and (3) any other factors the Board may determine 
     to be appropriate.
       In designating the reserve ratio, the FDIC must follow 
     notice-and-comment rulemaking procedures, and is required to 
     publish a thorough analysis of the data and projections if it 
     proposes to change the DRR.
     Section 2106. Requirements applicable to the risk-based 
         assessment system
       This section directs the FDIC to collect information from 
     all appropriate sources in determining risk of losses to the 
     DIF. This provision does not authorize the FDIC to impose 
     additional recordkeeping requirements on insured depository 
     institutions.
       The FDIC is required to consult with the appropriate 
     Federal banking agency in assessing the risk of loss to the 
     DIF with respect to any insured depository institution. This 
     risk of loss evaluation may be done on an aggregate basis for 
     institutions that are determined to be well-capitalized and 
     well-managed.
       The FDIC is also required to provide notice and opportunity 
     for comment prior to revising or modifying the risk-based 
     assessment system.
     Section 2107. Refunds, dividends, and credits from Deposit 
         Insurance Fund
       This section provides for refunds or credits of any 
     assessment payment that was made by an insured depository 
     institution in excess of the amount due the FDIC.
       The section specifies two circumstances under which the 
     FDIC is required to pay dividends to insured depository 
     institutions: (1) whenever the reserve ratio of the DIF 
     equals or exceeds 1.35 percent of estimated insured deposits 
     and is less than or equal to 1.5 percent of such deposits, 
     the FDIC is required to pay dividends equal to 50 percent of 
     the amount in excess of what is required to maintain the 
     reserve ratio at 1.35 percent unless the FDIC determines that 
     a significant risk of losses to the DIF exists and such 
     losses justify the growth of the reserve ratio; and (2) 
     whenever the reserve ratio of the DIF exceeds 1.5 percent of 
     estimated insured deposits, the FDIC is required to pay 
     dividends in the amount of the excess of what is necessary to 
     maintain the ratio at 1.5 percent.
       The section also provides for a transitional credit of 10.5 
     basis points of the total assessment base as of December 31, 
     2001 (or about $4.7 billion) to eligible insured depository 
     institutions based on their respective percentage of total 
     industry assessable deposits held as of December 31, 1996. 
     Eligible insured depository institutions had to be in 
     existence at December 31, 1996, or be a successor to such 
     an institution, and to have paid a deposit insurance 
     assessment prior to that date.
       For purposes of allocating dividends, the FDIC is required 
     to determine each insured depository institution's relative 
     contribution to the DIF (or any predecessor deposit insurance 
     fund), taking into account the institution's share of the 
     assessment base as of December 31, 1996; the total amount of 
     deposit insurance assessments paid by the institution after 
     December 31, 1996; that portion of assessments paid by an 
     institution that reflects higher levels of risk assumed by 
     the institution; and such other factors as the FDIC deems 
     appropriate. The FDIC's calculation, declaration and payment 
     of dividends are made subject to notice-and-comment 
     rulemaking.
       For any insured depository institution that exhibits 
     financial, operational or compliance weaknesses ranging from 
     moderately severe to unsatisfactory at the beginning of the 
     assessment period, credits may not exceed the amount 
     calculated by applying to that institution the average 
     assessment rate on all insured depository institutions for 
     that assessment period.
       In promulgating regulations establishing a system for 
     dividends and credits, the FDIC is required to include 
     provisions allowing insured depository institutions a 
     reasonable opportunity to challenge administratively the 
     amount of their dividends or credits.
       In determining the appropriate distribution of dividends, 
     the FDIC must weigh a number of factors in its rulemaking 
     process. The calculation should recognize past contributions 
     to the deposit insurance funds by incorporating the ratio 
     determined for an institution in the calculation of the 
     institution's one-time credit based on total assessment base 
     at year-end 1996, as well as the actual assessments paid 
     since that time. In establishing the dividend system, the 
     FDIC should also take into account and make adjustments that 
     reflect the higher risk profiles of some institutions so that 
     they are not rewarded for riskier behavior. The FDIC is given 
     the discretion to incorporate additional factors, through the 
     rulemaking process, as it deems appropriate.
     Section 2108. Deposit Insurance Fund restoration plans
       Whenever the reserve ratio falls or is projected to fall 
     below the low end of the range within which the FDIC is 
     authorized to set the DRR, the FDIC is required, within 90 
     days, to establish and implement a plan for restoring the DIF 
     to that level within five years or a longer period in 
     extraordinary circumstances. While such a restoration plan is 
     in effect, the FDIC has the authority to restrict the use of 
     assessment credits by insured depository institutions, but is 
     required to apply to an institution's assessment an amount 
     that is the lesser of the institution's assessment or 3 basis 
     points of an institution's assessment base. The FDIC must 
     publish the details of its restoration plan in the Federal 
     Register within 30 days of its implementation.
     Section 2109. Regulations required
       This section provides that the FDIC has 270 days after the 
     date of enactment to prescribe final regulations, after 
     notice and opportunity for public comment, establishing the 
     DRR, implementing increases in deposit insurance coverage, 
     implementing the dividend requirement and the one-time 
     assessment credit, and providing for premium assessments 
     under the amended Act.
     Section 2010. Studies of FDIC structure and expenses and 
         certain activities and further possible changes to 
         deposit insurance system
       This section provides that within one year of enactment, 
     reports must be submitted to Congress on the following 
     issues:
       (1) The efficiency and effectiveness of the administration 
     of the prompt corrective action (PCA) program, including the 
     degree of effectiveness of the Federal banking agencies in 
     identifying troubled depository institutions and the degree 
     of accuracy of the risk assessments made by the FDIC;
       (2) The appropriateness of the FDIC's organizational 
     structure for the mission of the FDIC, to take into account 
     the current size and complexity of the business of insured 
     depository institutions; the extent to which the 
     organizational structure contributes to or reduces 
     operational inefficiencies that increase operational costs; 
     and the effectiveness of internal controls;
       (3) The feasibility of establishing a voluntary deposit 
     insurance system for deposits in excess of the maximum amount 
     of deposit insurance for any depositor;
       (4) The feasibility of increasing the limit on deposit 
     insurance for deposits of municipalities and other units of 
     general local government;
       (5) The feasibility of privatizing all deposit insurance at 
     insured depository institutions and insured credit unions; 
     and,
       (6) The feasibility of using an alternative to estimated 
     insured deposits in calculating the DIF's reserve ratio and 
     the DRR.
       (7) The section directs the FDIC to conduct a study of the 
     reserve methodology and loss accounting for insured 
     depository institutions in a troubled condition over the 
     period January 1, 1992 through December 31, 2004, and report 
     its findings and conclusions to Congress within one year of 
     the date of enactment. The FDIC is required to obtain 
     comments on the design of this study from the Government 
     Accountability Office (GAO), and to provide a draft of the 
     final report to GAO prior to its submission to Congress.
       (8) The section directs the Comptroller General to report 
     to the Committee on Financial Services of the House and the 
     Committee on Banking, Housing, and Urban Affairs in the 
     Senate, the potential impact on the United States financial 
     system, the implementation of the new Basel Capital Accord 
     and the proposed revisions to current reserve requirement 
     regulations for non-Basel II banks.
     Section 2111. Bi-annual FDIC survey and report on increasing 
         the deposit base by encouraging use of depository 
         institutions by the unbanked
       This section requires the FDIC to conduct a bi-annual 
     survey on efforts by insured depository institutions to bring 
     the `unbanked' into the conventional finance system, and 
     report its findings and conclusions to the House Committee on 
     Financial Services and the Senate Committee on Banking, 
     Housing and Urban Affairs, together with any recommendations 
     for legislative or administrative action.
     Section 2112. Technical and Conforming Amendments to the 
         Federal Deposit Insurance Act relating to the merger of 
         the BIF and SAIF
       This section makes numerous amendments to ensure the 
     technical conformity of the Federal Deposit Insurance Reform 
     Act to various provisions in the Federal Deposit Insurance 
     Act and other banking laws, to include the authority of the 
     DIF to borrow from insured depository institutions and the 
     Federal Home Loan Banks.
       In particular, this section repeals section 5(d)(2) of the 
     Federal Deposit Insurance Act, dealing with exit fees 
     collected from institutions leaving the Savings Association 
     Insurance Fund (SAIF). These funds will be returned to the 
     DIF upon the repeal of this provision.
     Section 2113. Other Technical and Conforming Amendments 
         relating to the merger of the BIF and SAIF
       This section ensures the technical conformity of the 
     Federal Deposit Insurance Reform Act to various provisions in 
     the Federal Deposit Insurance Act and other banking laws.
       The managers on the part of the House and Senate at the 
     conference on the disagreeing

[[Page H12691]]

     votes of the two Houses on the amendment of the Senate to 
     bill (S. 1932), to expedite the digital television (DTV) 
     transition while helping consumers to continue to use their 
     analog televisions, to free spectrum for public safety and 
     commercial use, to improve emergency communications, to 
     provide resources for the design and deployment of a 
     temporary digital television broadcast system for New York 
     City in response to the destruction of the World Trade Center 
     during the terrorist attacks of September 11, 2001, and to 
     ensure continued air service to rural communities through the 
     Essential Air Service program and for other purposes, submit 
     the following joint statement to the House and Senate in 
     explanation of the effect of the action agreed upon by the 
     managers and recommended in the accompanying conference 
     report.

                        CONGRESSIONAL DIRECTIVES

       The statement of the managers remains silent on provisions 
     that were in both the House and Senate bills that remain 
     unchanged by this conference agreement, except as noted in 
     this statement of the managers.
       The conferees agree that executive branch wishes cannot 
     substitute for Congress' own statements as to the best 
     evidence of congressional intentions--that is, the official 
     reports of the Congress.

                Title III--Digital Television Transition

     Section 3001. Short title
       Section 3001 would provide that this Title may be cited as 
     the ``Digital Television Transition and Public Safety Act of 
     2005.''
     Sec. 3002. Analog spectrum recovery; firm deadline
       Section 3002 directs the Federal Communication Commission 
     (FCC) to take all steps necessary to require, by February 18, 
     2009, that full-power television stations stop analog 
     broadcasting, and that Class A stations, whether broadcasting 
     in analog or digital format, and full-power television 
     stations broadcasting in digital format, conduct such 
     broadcasting on channels 2 to 36 and 38 to 51. This enables 
     channels 52 to 62 and 65 to 67 to be auctioned, and channels 
     63, 64, 68, and 69 to be used for public-safety purposes. 
     Among the necessary steps the FCC will need to take are to 
     issue a report and order on the digital television table of 
     channel allotments, and to coordinate those allotments with 
     Canada and Mexico to resolve any international interference 
     issues.
       Section 3002 also clarifies that only full-power stations, 
     not low-power stations, must cease analog broadcasting by 
     February 18, 2009. Low-power stations, including Class A 
     stations, may continue broadcasting in analog format after 
     February 18, 2009, subject to future decisions by the FCC on 
     how to complete the digital television transition for such 
     stations. Low-power stations other than Class A stations may 
     also continue such analog broadcasting above channel 51, 
     subject to future FCC decisions, so long as those stations' 
     use of those channels is secondary to the use of those 
     channels by the auction winners and public safety officials.
     Section 3003. Auction of recovered spectrum
       Section 3003 would amend the Communications Act of 1934 to 
     require the FCC to conduct an auction of the recovered 
     spectrum commencing by January 28, 2008. The FCC's auction 
     authority would be extended through September 30, 2011.
     Sec. 3004. Reservation of auction proceeds
       This provision requires that the proceeds from the auction 
     of analog spectrum be deposited in a single separate fund in 
     the Treasury, to be called the ``Digital Television 
     Transition and Public Safety Fund,'' in order to fund several 
     programs. On September 30, 2009, $7,363,000,000 shall be 
     transferred from the Digital Television Transition and Public 
     Safety Fund to the general fund of the Treasury.
     Section 3005. Digital transition and public safety fund
       To help consumers who wish to continue receiving broadcast 
     programming over the air using analog-only televisions not 
     connected to cable or satellite service, the bill authorizes 
     the National Telecommunications and Information 
     Administration (NTIA) to create a digital-to-analog converter 
     box assistance program. Under the program, the NTIA is 
     initially allocated up to $990 million of the spectrum 
     auction revenues to send by U.S. mail up to two $40 coupons 
     to each U.S. household that requests to participate in the 
     program. Consumers may use the coupons toward the purchase of 
     eligible digital-to-analog converter-boxes. Such boxes, and 
     over-the-air digital televisions in general, can work with 
     the antennas consumers already use in their homes for analog 
     over-the-air broadcasts. The NTIA may use up to $100 million 
     of the $990 million for administrative costs. Up to 
     $5,000,000 of the administrative funds may be used to educate 
     consumers about the digital television transition and the 
     digital-to-analog converter-box program. If, as the program 
     progresses, it appears the NTIA will need additional funds, 
     the NTIA may certify to Congress that it cannot operate the 
     program without more money, at which point the funds 
     available for the program shall increase to $1.5 billion and 
     the cap on administrative expenses shall increase to $160 
     million. The NTIA would be allowed access to the additional 
     funds 60 days after the certification.
       Even if NTIA spends $100 million on administrative costs, 
     the remaining $890 million in converter-box program proceeds 
     would fund 22,250,000 coupons. And each additional $40 the 
     NTIA does not spend on administration is another coupon it 
     can make available to consumers. Thus, the Managers expect in 
     any NTIA certification to raise the caps that the NTIA 
     explain in detail why access to additional funds is 
     necessary, whether those funds are to be used for 
     administrative costs or for the coupons themselves, and why 
     the NTIA was unable to operate the program within the $990 
     million overall cap and $100 million administrative cap.
       The Managers note that the February 17, 2009, firm deadline 
     will have little impact on most television households. Only 
     consumers relying on over-the-air broadcasts should need to 
     participate in the converter-box program. Only 14.86 percent 
     of U.S. television households relied exclusively on over-the-
     air transmission as of June 2004, according to the FCC. By 
     contrast, the FCC reports that 92.3 million households, 
     representing 85.14 percent, subscribed to a multichannel 
     video programming distribution (MVPD) service, such as those 
     offered by a cable or satellite operator.
       The coupon structure of the program and requiring consumers 
     to make affirmative requests for coupons takes into account 
     that many consumers will neither need nor want a subsidized 
     converter box. By contrast, if converter-boxes were made 
     directly available at subsidized rates at stores, or coupons 
     were automatically sent to every U.S. household, impulse 
     participation by consumers who do not really need either a 
     converter-box or a subsidy would cause the program to run out 
     of funds before consumers who really do need a subsidized box 
     avail themselves of the program.
       The Managers expect NTIA to promulgate regulations within 
     nine months of enactment governing: (1) the content and 
     distribution of coupon request forms and coupons; (2) 
     consumer redemption of, and retailer reimbursement for, the 
     coupons; (3) the types of converter boxes that shall be 
     eligible for purchase with a coupon; (4) certification, 
     education, and auditing of retailers involved in the program; 
     and (5) consumer and retailer appeals. The requirement to 
     send the coupons through the U.S. mail is designed to help 
     NTIA administer the two-coupon per household limit. That 
     limit would be much more difficult to implement if the 
     coupons themselves were distributed electronically or simply 
     made available at government buildings such as post offices. 
     The U.S. mail requirement is also intended to reduce fraud 
     that might occur with electronically distributed coupons. The 
     Managers expect NTIA to take additional measures to reduce 
     fraud and abuse, such as including anti-counterfeit measures 
     and perhaps unique serial numbers on the coupons. The 
     Managers do expect NTIA to use the efficiencies of electronic 
     media and networks, however, to make other aspects of the 
     program more efficient, such as outreach efforts, the 
     distribution of coupon request forms, and the reimbursement 
     of retailers for coupons that consumers redeem. NTIA should 
     also take measures to protect consumer privacy in the use of 
     information provided in conjunction with participation in the 
     program.
     Sec. 3006. Public safety interoperable communications
       Section 3006 provides funding in the amount of 
     $1,000,000,000 to help ensure interoperability for our 
     nation's first responders. In order to obtain a grant under 
     this section, a public safety agency shall--(l) submit an 
     application to the Assistant Secretary at such time, in such 
     form, and containing or accompanied by such information and 
     assurances as the Assistant Secretary shall require; (2) 
     agree that, if awarded a grant, the public safety agency will 
     submit annual reports to the Assistant Secretary for the 
     duration of the grant award period with respect to--(A) 
     the expenditure of grant funds; and (B) progress toward 
     acquiring and deploying interoperable communications 
     systems funded by the grant; and (3) agree to remit to the 
     Assistant Secretary any grant funds that remain unexpended 
     at the end of the 3-year period of the grant.
       Grants under this section shall be awarded in the form of a 
     single grant for a period of not more that 3 years. At the 
     end of 3 years, any grant funds that remain unexpended should 
     be remitted by the grantee to the Assistant Secretary, and, 
     may be awarded to other eligible grant recipients. At the end 
     of fiscal year 2010, any such re-awarded grant funds that 
     remain unexpended shall be remitted by the grantee to the 
     Assistant Secretary and may not be re-awarded to other 
     grantees.
       In order to ensure consistency amongst various federal 
     interoperable communications grant programs, the Managers 
     expect the Assistant Secretary, in consultation with the 
     Secretary of the Department of Homeland Security, to 
     administer the grant program in a manner consistent with the 
     recommended guidance for public safety communications and 
     interoperability grants established by the Office of Grant 
     and Training of the Preparedness Directorate and the SAFECOM 
     Program of the Office for Interoperability and Compatibility 
     of the Science and Technology Directorate of the Department 
     of Homeland Security. In addition, the Managers expect that 
     the Assistant Secretary, in consultation with the Secretary 
     of the Department of Homeland Security, will ensure that the 
     grants awarded under this program are utilized by public 
     safety agencies in a manner which is consistent with 
     applicable state interoperable communications

[[Page H12692]]

     plans, state and urban area homeland security strategies, and 
     the National Preparedness Goal and accompanying guidance.
       Moreover, in order to minimize the paperwork and 
     administrative burden of public safety agencies applying for 
     funds under this grant program, the Managers expect the 
     Assistant Secretary, in consultation with the Secretary of 
     the Department of Homeland Security, to enable a public 
     safety agency to utilize, to the maximum extent practicable, 
     the identical application such public safety agency may have 
     submitted to the Department of Homeland Security for any 
     interoperable communications funding from the Department of 
     Homeland Security and to take any other steps to minimize the 
     administrative burden of public safety agencies that may be 
     applying both for funds under this grant program and funds 
     for interoperable communications from the Department of 
     Homeland Security.
       The Managers intend that grants under this section may be 
     used for the acquisition costs associated with designing an 
     interoperable communications system so that the system is 
     properly engineered based upon the topography, population 
     density, or other characteristics of the area in which the 
     system will operate. The Managers note that there is a 
     diverse array of technological and engineering solutions that 
     enable interoperable communications systems.
       The Managers encourage the Assistant Secretary, in 
     consultation with the Secretary of the Department of Homeland 
     Security, to consider distributing a limited portion of grant 
     funds under this section in a manner that gives priority to 
     those public safety agencies in areas designated as at high 
     risk for natural disasters and threats of terrorism to the 
     agriculture, food, banking, and chemical industries; the 
     defense industrial base; emergency services; energy; 
     government facilities; postal, shipping, public health, 
     health care, information technology, telecommunications, and 
     transportation systems; water; dams; commercial facilities; 
     and national monuments and icons.
     Section 3007. NYC 9/11 digital transition
       The funding provided under this section, $30,000,000, would 
     enable New York City broadcasters can build interim 
     facilities to ensure that the New York metropolitan area 
     could receive an adequate digital broadcast signal until the 
     new facilities atop the Freedom tower can be completed. The 
     Managers do not intend this program to alter or affect the 
     FCC's authority with respect to licensing, interference, or 
     other regulation.
     Sec. 3008. Low-Power television and translator digital to 
         analog conversion
       Section 3008 provides funding to facilitate continued 
     service for the viewers of low power television stations over 
     their analog TVs. The Assistant Secretary shall determine the 
     maximum amount of compensation such a low-power television 
     station may receive based on the average cost of such 
     digital-to-analog conversion devices during the time period 
     such low-power broadcast television station purchased the 
     digital-to-analog conversion device, but in no case shall 
     such compensation exceed $1,000.
     Section 3009. Low-power and translator upgrade program
       The funding provided under this section would make 
     available $65,000,000 for a program to convert low-power 
     television stations and television translator stations from 
     analog to digital transmissions.
     Sec. 3010. National alert and tsunami warning program
       The funding provided under this section, $156,000,000, will 
     provide for a modern all hazards alert and warning program to 
     provide alerts in response to natural disasters, man-made 
     accidents, and terrorist incidents. The program will 
     encourage, but not mandate, new technologies such as wireless 
     communication devices, satellite radios, and personal 
     computers to enhance the nation's current emergency warning 
     capability. The goal of the program will be to help ensure 
     that regardless of what communication technology an 
     individual relies upon they will get an alert to a threat to 
     public safety.
       The funding will be used to develop technologies to allow 
     emergency managers to precisely geographically target their 
     alerts to only populations at risk. Research and development 
     will be encouraged, but not mandated, to be conducted through 
     a cooperative research program with the telecommunications 
     industry. The funds should also be used to provide emergency 
     managers with the tools necessary to input alerts into a 
     national alerting system and have them retransmitted across 
     all appropriate communication mediums. There should be 
     established a procedure to provide credentials to emergency 
     managers who wish to use the system to ensure the integrity 
     of emergency alert communications to the public. The office 
     responsible for managing the system should also ensure that 
     personnel using the system are appropriately trained on how 
     and when to use the system and understand that the system 
     should only be used for grave threats to public safety. 
     Personnel should also be trained to issue alerts that provide 
     the public with information on what to do to protect 
     themselves from the threat.
     Section 3011. ENHANCE 911
       The funding provided under this section would make 
     available $43,500,000 in grants to implement the ENHANCE 911 
     Act of 2004.
     Section 3012. Essential air service program
       The funding provided under this section would make 
     $30,000,000 in grants to the Essential Air Service program.
     Section 3013. Supplemental license fees
       This section provides for additional fees to be assessed by 
     the Federal Communications Commission in the aggregate amount 
     of $10,000,000 during fiscal year 2006.

                           Title V--Medicare

                           Subtitle A--Part A

     Hospital Quality Improvement (Section 5001 of the Conference 
         Agreement, Section 6110 of the Senate Bill and no 
         provision in the House Bill)
     Current Law
       Each year, Medicare's operating payments to hospitals are 
     increased or updated by a factor that is determined in part 
     by the projected annual change in the hospital market basket 
     (MB), a measure that estimates price inflation affecting 
     hospitals. Congress establishes the update for Medicare's 
     inpatient prospective payment system (IPPS) for operating 
     costs in acute care hospitals, often several years in 
     advance. Currently, through FY2007, the IPPS operating update 
     has been established as the MB for hospitals that submit 
     specific quality information and as the MB minus 0.4 
     percentage points for hospitals that do not provide such 
     information. The required data are those ten quality 
     indicators established by the Secretary of the Department of 
     Health and Human Services (the Secretary) as of November 1, 
     2003. Starting in FY2008, the IPPS update will be the 
     hospital MB. Any MB reduction does not apply when computing 
     the applicable percentage increase in subsequent years.
       Outlier payments are intended to protect IPPS hospitals 
     from the risk of financial losses associated with patients 
     with exceptionally high costs or unusually long stays. 
     Medicare cases qualify for outlier payments if they exceed a 
     threshold or fixed loss amount that is established each year. 
     As directed by statute, the total amount of any outlier 
     payments for any year should equal no less than 5% nor more 
     than 6% of total projected operating diagnosis related group 
     (DRG) payments. Outlier payments are financed by a reduction 
     in the national average standardized amount, typically set at 
     5.1%.
       For the purpose of establishing the correct IPPS payment, 
     Medicare discharges are classified into diagnosis related 
     groups (DRGs) primarily on the basis of the diagnosis and 
     procedure code information included on the beneficiary's 
     claim. The information includes the principal diagnosis (or 
     main problem requiring inpatient care), up to eight secondary 
     diagnoses codes as well as up to six procedures performed 
     during the stay. Medicare pays for inpatient hospital 
     services using per discharge rates that will vary by the DRG 
     (and its calculated weight) to which a patient's stay is 
     assigned. Each DRG weight represents the average resources 
     required to provide care for cases in that specific DRG 
     relative to the average resources used to treat cases in all 
     DRGs. The Center for Medicare and Medicaid Services (CMS) 
     annually reviews the DRG definitions and relative weights to 
     (1) reflect changes in treatment patterns and technology 
     improvements and (2) ensure that cases with clinically 
     similar conditions requiring comparable resources are grouped 
     together.
       Under the DRG classification system, certain secondary 
     diagnoses are considered to be complications or comorbidities 
     (CC). When present as a secondary condition (with a specific 
     principal diagnosis), these diagnosis codes are considered to 
     increase the length of stay by at least one day in at least 
     75% of the patients. In FY2006, there are 3,285 diagnosis 
     codes on the CC list. 524 DRGs are used for Medicare payment 
     purposes and 121 paired DRGs are split into higher and lower 
     paid DRGs on the presence or the absence of a CC. CMS has 
     added and deleted codes from the standard list of CCs, but 
     has never conducted a comprehensive review of the list. It is 
     planning to review systematically the CC list for FY2007 
     Medicare payments.
     Senate Bill
       The Medicare statute would be amended by adding a new 
     Section l860E-2 which establishes the hospital value-based 
     purchasing program for inpatient hospital services, starting 
     FY2007. The program would make value-based payments to 
     hospitals based on data reported under the quality 
     measurement system established by the Secretary. Hospitals 
     paid under Medicare's prospective payment system (PPS) that 
     have substantially improved the quality of care over the 
     prior year or exceeded an established quality threshold would 
     receive a value-based payment as determined by the Secretary. 
     A majority of the total amount available for value-based 
     payments in any fiscal year would be paid to hospitals that 
     are receiving such payments for exceeding a quality 
     threshold. Starting in FY2008, the percentage of the total 
     amount for value-based payments in any fiscal year that is 
     paid to such hospitals would be greater than the equivalent 
     percentage paid in the previous year. Hospitals would be 
     required to comply with all the quality data reporting 
     requirements and attest to the accuracy of the data in order 
     to be eligible for a value-based payment. The total amount of 
     value-based payments in a fiscal year would equal the total 
     amount of available funding for such payments for that year. 
     The payments would be based on the methods determined by the 
     Secretary and would be made to hospitals no later than the 
     close of the following fiscal

[[Page H12693]]

     year. No later than January 1, 2007, the Secretary would 
     provide each hospital with a description of how its payments 
     for FY2006 would have been affected had the valuebased 
     payment program been in effect that fiscal year.
       Value-based payments in a fiscal year would be made from 
     Medicare's Part A Trust fund and would equal specified 
     reductions in those trust fund expenditures as established in 
     Section 6110(b) of the bill. Specifically, IPPS outlier 
     payments would be established as no less than 5 percent and 
     no more than 6 percent for fiscal years prior to 2007. In 
     FY2007, outlier payments would be established as no less than 
     4 percent and no more than 5 percent. In FY2008, outlier 
     payments would be established as no less than 3.75 percent 
     and no more than 4.75 percent. In FY2009, outlier payments 
     would be established as no less than 3.5 percent and no more 
     than 4.5 percent. In FY2010, outlier payments would be 
     established as no less than 3.25 percent and no more than 
     4.25 percent. In FY2011 and in subsequent years, outlier 
     payments would be established as no less than 3 percent and 
     no more than 4 percent.
       The Secretary would be directed to reduce the average 
     standardized amount by certain percentages to fund outlier 
     payments and the hospital value-based purchasing program. The 
     reduction factor would be equal to a calculation where the 
     numerator is the sum of the additional outlier payments (as 
     discussed in the preceding paragraph) plus a specified 
     percentage of total projected DRG prospective payment rates 
     divided by the total projected DRG prospective payment rates. 
     The specific percentages would be 0 percent for fiscal years 
     prior to 2007, 1 percent in FY2007, 1.25 percent in FY2008, 
     1.5 percent in FY2009, 1.75 percent in FY2010, and 2 percent 
     in FY2011 and in subsequent years.
       Acute care hospitals that do not submit required quality 
     data would receive the MB minus 2 percentage points for 
     FY2007 and each subsequent fiscal year. The reduction would 
     apply only with respect to the fiscal year involved and would 
     not be taken into account when computing subsequent updates. 
     The required quality data would be that determined by the 
     Secretary to be appropriate for the measurement of health 
     care quality, including data necessary for the operation of 
     the IPPS hospital value-based purchasing program.
     House Bill
       No provision.
     Conference Agreement
       Hospitals that do not submit the required data in FY2007 
     and each subsequent year will have the applicable MB 
     percentage increase reduced by 2 percentage points. Each IPPS 
     hospital is required to submit data on measures selected by 
     the Secretary in the established form, manner, and specified 
     time. Any reduction applies only to the fiscal year in 
     question and does not affect subsequent fiscal years.
       The conference agreement establishes that the Secretary 
     will expand the number of quality indicators required to be 
     reported by acute care hospitals. Beginning October 1, 2006 
     the Secretary will begin to adopt the baseline set of 
     performance measures set forth in the November 2005 Institute 
     of Medicine report that was required by section 238(b) of the 
     Medicare Prescription Drug, Improvement, and Modernization 
     Act of 2003. Beginning October 1, 2007, the Secretary will 
     add other measures that reflect consensus among the affected 
     parties. To the extent feasible and practicable, these 
     measures will include those established by national consensus 
     building entities. The Secretary is permitted to vary and 
     replace any measures in appropriate cases, such as where all 
     hospitals are effectively in compliance or where measures 
     have been shown not to represent the best clinical practice.
       The Secretary is required to establish procedures for 
     making the submitted quality data available to the public. 
     These procedures will ensure that a hospital has the 
     opportunity to review the data before they are made available 
     to the public. The Secretary is required to report quality 
     measures of process, structure, outcome, patients' 
     perspective on care, efficiency, and costs of care that 
     relate to inpatient services on the Internet website of CMS.
       The Secretary is required to develop a plan to implement a 
     value-based purchasing program for IPPS payments to acute 
     care hospitals beginning with FY2009. The plan will include 
     consideration of (1) the on-going development, selection, and 
     modification process for measures of quality and resource use 
     in hospital inpatient settings; (2) the reporting, 
     collection, and validation of the data; (3) the structure of 
     value-based payment adjustments such as the determination of 
     thresholds for a payment adjustment, the size of the payment 
     adjustment and the sources of funding for the value-based 
     payments; and (4) the disclosure of information on hospital 
     performance. The Secretary will consult with relevant 
     affected parties and consider experience with applicable 
     demonstration programs.
       The Secretary is required to submit a report to Congress on 
     the plan for the value-based purchasing program no later than 
     August 1, 2007. The Medicare Payment Advisory Commission 
     (MedPAC) is required to submit a report with detailed 
     recommendations on the structure of the valued based payment 
     adjustments no later than June 1, 2007. The report will 
     include (1) a determination of thresholds, size of payments, 
     sources of funds, and relationship of payments to quality 
     measures; (2) analyses of hospital efficiency measures such 
     as costs per discharge, related services (including physician 
     services) within an episode of care; and (3) an 
     identification of other changes that are needed within the 
     IPPS payment structure.
       Starting for discharges on October 1, 2007, hospitals are 
     required to report any secondary diagnosis codes applicable 
     to patients at their admission. By October 1, 2007, the 
     Secretary is required to identify at least 2 high cost or 
     high volume (or both high cost and high volume) diagnoses 
     codes with a DRG assignment that has a higher payment weight 
     when present with secondary diagnoses. These diagnoses codes 
     represent conditions, including certain hospital acquired 
     infections, that could reasonably have been prevented through 
     the application of evidence-based guidelines. Starting for 
     discharges on October 1, 2008, the DRG assigned to a 
     discharge with the identified diagnosis codes will be the DRG 
     that does not result in higher payments based on the presence 
     of these secondary diagnosis codes. This assignment of the 
     lower paid DRG applies to discharges, where, at the time of 
     the patient's admission, the beneficiary had none of the 
     identified diagnosis codes. Adjustments to the relative 
     weight that occur because of this action are not budget 
     neutral. Specifically, aggregate payments for discharges in a 
     fiscal year could be changed as a result of such adjustments.
       The list of selected diagnosis may be revised from time to 
     time as long as there are at least two conditions selected 
     for discharges occurring during any fiscal year. The 
     Secretary is required to consult with the Centers for Disease 
     Control and Prevention and other appropriate entities when 
     selecting and revising the identified diagnosis codes. The 
     list of diagnosis codes and DRGs are not subject to judicial 
     review.
     Clarification of Determination of Medicaid Patient Days for 
         DSH Computation (Section 5002 of the Conference 
         Agreement, no provision in the Senate Bill and no 
         provision in the House Bill)
     Current Law
       Hospitals that serve a certain number of low income 
     Medicare and Medicaid beneficiaries will receive a 
     disproportionate share hospital (DSH) adjustment that 
     increases their Medicare IPPS payments. Most DSH hospitals 
     receive the additional payments based on their DSH patient 
     percentage which is the proportion of the hospital's total 
     days provided to Medicaid recipients added to the proportion 
     of the hospital's Medicare inpatient days provided to poor 
     Medicare beneficiaries (those who are eligible for Part A and 
     receive Supplemental Security Income.) After a minimum 
     threshold of 15 percent is met, a hospital's DSH adjustment 
     will vary by the hospital's bed size or urban or rural 
     location.
       The policy of whether inpatient days provided to a patient 
     covered under a demonstration project established by Section 
     1115 waivers could be included in the Medicare DSH 
     calculation has changed over time. Prior to January 20, 2000, 
     hospitals could not include the inpatient hospital days 
     attributable to patients made eligible for Medicaid pursuant 
     to a state's Social Security Act Section 1115 waiver. 
     Starting on January 20, 2000, hospitals could include days 
     for populations under the section 1115 waiver who were or 
     could have been made eligible under a State Medicaid plan. 
     This policy was corrected for discharge starting on October 
     1, 2003, when hospital inpatient days attributed to patients 
     who do not receive coverage for inpatient benefits under 
     Section 1115 demonstration projects could not be counted in 
     the Medicare DSH calculation. These policies were established 
     by regulation in January, 2000 and August, 2003.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement permits the Secretary to include 
     inpatient hospital days of patients eligible for medical 
     assistance under a Section 1115 demonstration waiver in the 
     Medicare DSH calculation. These days will be counted as if 
     they were provided to patients who were eligible for medical 
     assistance under an approved Medicaid state plan. The 
     existing regulations and their effective date are ratified. 
     No hospital cost reports that are closed on the enactment 
     date will be reopened to implement this provision.
     Improvements to the Medicare-Dependent Hospital (MDH) Program 
         (Section 5003 of the Conference Agreement, Section 6101 
         of the Senate Bill, and no provision in the House Bill)
     Current Law
       Certain rural hospitals with 100 beds or less that have at 
     least 60 percent of its inpatient days or discharges during 
     FY1987 or during two of the three most recently audited cost 
     reporting periods (for which there is a settled cost report) 
     are attributed to patients covered under Medicare qualify for 
     special treatment under the inpatient prospective payment 
     system as Medicare dependent hospitals (MDH). MDH hospitals 
     are paid at national standardized rate or, if higher, 50 
     percent of their adjusted FY1982 or FY1987 hospital-specific 
     costs. This special treatment will lapse for discharges 
     starting on October 1, 2006.
       Certain hospitals that serve a high proportion of Medicaid 
     patients or poor Medicare

[[Page H12694]]

     beneficiaries qualify for a disproportionate share hospital 
     (DSH) adjustment to their inpatient payments. Small urban and 
     most rural hospitals (except for rural referral centers) have 
     their DSH adjustment capped at 12 percent.
     Senate Bill
       The MDH status for qualifying rural hospitals would be 
     extended through discharges occurring before October 1, 2011. 
     Starting for discharges on October 1, 2006, a MDH would be 
     able to elect payments based of its FY2002 hospital-specific 
     costs if that would result in higher Medicare payments. MDH's 
     payments would be based on 75 percent of their adjusted 
     hospital-specific costs starting for discharges on October 1, 
     2006. MDH's that qualify for a disproportionate share 
     hospital (DSH) adjustment would not have the adjustment 
     capped at 12 percent.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement adopts the Senate provision.
     Reduction in Payments to Skilled Nursing Facilities for Bad 
         Debt (Section 5004 of the Conference Agreement, Section 
         6102 of the Senate Bill, and no provision in the House 
         Bill)
     Current Law
       Medicare pays for the costs of certain items outside of the 
     Prospective Payment System on a reasonable costs basis. 
     Section 1861(v)(1)(A)(I) of the Social Security Act states 
     that the costs for individuals covered by the Medicare 
     program must not be borne by individuals not covered by the 
     program, and the costs for individuals not covered by the 
     program must not be borne by Medicare. Under this authority, 
     the Secretary adopted a bad debt policy in 1966. Under this 
     policy, Medicare reimburses certain providers for debt unpaid 
     by beneficiaries for coinsurance and deductibles. 
     Historically, CMS has reimbursed certain providers for 100 
     percent of this bad debt. SNFs are among the Medicare 
     entities that are currently being reimbursed for 100 percent 
     of beneficiary's bad debt.
       Effective beginning with cost reports starting in FY2001, 
     Medicare began reimbursing hospitals for 70 percent of the 
     reasonable costs associated with beneficiaries' bad debt. In 
     2003, CMS issued a proposed rule (42 CFR Part 413, Medicare 
     Program; Provider Bad Debt Payment) in which it described its 
     intent to reduce reimbursement of bad debt for certain 
     providers, including SNFs, by 30 percent. Within the rule, 
     CMS explained that it believed that reducing the amount of 
     Medicare debt reimbursement would encourage accountability 
     and foster an incentive to be more efficient in bad debt 
     collection efforts. It also stated that it believed that 
     Medicare bad debt policy should be applied consistently and 
     fairly among all providers eligible to receive bad debt 
     reimbursement.
     Senate Bill
       The provision would amend Section 1861(v)(1) of the Social 
     Security Act to reduce the payment for the allowable bad 
     debts attributable to Medicare deductibles and coinsurance 
     amounts by 30 percent for services furnished in SNFs on or 
     after October 1, 2005.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement reduces payments for allowable bad 
     debts attributable to Medicare coinsurance by 30 percent for 
     those individuals who are not dually eligible for Medicare 
     and Medicaid. Bad debt payments for individuals who are 
     dually eligible for Medicare and Medicaid remain at 100 
     percent.
     Extended Phase-in of the Inpatient Rehabilitation Facility 
         Classification Criteria (Section 5005 of the Conference 
         Agreement, Section 6103 of the Senate Bill, and no 
         provision in the House Bill)
     Current Law
       Inpatient rehabilitation facilities (IRFs) are either 
     freestanding hospitals or distinct part units of other 
     hospitals that are exempt from Medicare's inpatient 
     prospective payment system (IPPS) used to pay short-term 
     general hospitals. The Medicare statute gives the Secretary 
     discretion to establish the criteria that facilities must 
     meet in order to be considered an IRF. Since 1983, CMS has 
     required that a facility must treat a certain proportion of 
     patients with specified medical conditions in order to 
     qualify as an IRF and receive higher Medicare payments. The 
     rule was suspended temporarily and reissued in 2004 with a 
     revised set of qualifying conditions and a transition period 
     for the compliance threshold as follows: at 50 percent from 
     July 1, 2004 and before July 1, 2005; at 60 percent from July 
     1, 2005 and before July 1, 2006; at 65 percent from July 1, 
     2006 and before July 1, 2007; and at 75 percent from July 1, 
     2007 and thereafter. In April 2005, the Governmental 
     Accountability Office issued a final report recommending 
     that the Centers for Medicare and Medicaid Services (CMS) 
     refine the rule to describe more thoroughly the subgroups 
     of patients within a condition that require IRF services, 
     possibly using functional status or other factors in 
     addition to condition, to help ensure that IRFs can be 
     classified appropriately and that only patients needing 
     IRF services are admitted.
     Senate Bill
       The provision would establish the compliance threshold at 
     50 percent from July 1, 2005 through June 30, 2007. The 
     Secretary would not be permitted to change the designation of 
     an IRF that is in compliance with that threshold. The 
     Secretary would be required to restore the status of a 
     facility as an IRF from July 1, 2005 through the effective 
     date of this provision because of not meeting the 60 percent 
     threshold. The Secretary would be required to make 
     appropriate payments to those facilities. IRFs that failed to 
     meet the 50 percent compliance threshold would be deemed to 
     meet that threshold while an additional 6 months of claims 
     data is examined. If the review of the new data indicates 
     that the IRF is not in compliance with the 50 percent 
     threshold, the IRF's deemed status would be revoked 
     retroactively to the beginning of the 6 month period. The 
     Secretary would collect any overpayments made to the IRF. The 
     Inspector General would be required to analyze the types of 
     patients treated in IRFs that have a compliance rate between 
     50 percent and 60 percent. A report would be submitted to 
     Congress and the Secretary by January 1, 2005. A 
     Rehabilitation Advisory Council would be established until 
     September 30, 2010 to provide advice and recommendations 
     concerning coverage of rehabilitation services under the 
     Medicare program.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement establishes the compliance 
     threshold at 60 percent during the 12-month period beginning 
     on July 1, 2006; at 65 percent during the 12-month period 
     beginning on July 1, 2007; and at 75 percent beginning on 
     July 1, 2008 and subsequently. The conferees encourage CMS to 
     conduct additional research and study on this issue.
     Development of a strategic plan regarding physician 
         investment in specialty hospitals (Section 5006 of the 
         Conference Agreement, Section 6104 of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       Physicians are generally prohibited from referring Medicare 
     and Medicaid patients to facilities in which they (or their 
     immediate family member) have financial interests. 
     Physicians, however, are not prohibited from referring 
     patients to hospitals where they have ownership or investment 
     interest in the whole hospital itself (and not merely in a 
     subdivision of the hospital). Section 507 of the Medicare 
     Prescription Drug Improvement, and Modernization Act of 2003 
     (MMA) established that the exception for physician investment 
     and self-referral would not extend to specialty hospitals for 
     a period of 18-months from enactment (or until June 8, 2004). 
     In this instance, a specialty hospital is primarily or 
     exclusively engaged in the care and treatment of patients 
     with a cardiac condition, an orthopedic condition, those 
     receiving a surgical procedure, or other specialized category 
     of patient or cases that the Secretary designates as 
     inconsistent with the purpose of permitting physician 
     investment in a hospital. A specialty hospital does not 
     include any hospital that is determined by the Secretary to 
     be in operation or under development as of November 18, 2003, 
     with the same number of physician investors as of such date 
     that meets other specified requirements. For instance, an 
     increase in the number of beds could only occur on the main 
     campus of the hospital and could not exceed the greater of 50 
     percent of the number of beds in the hospital as of November 
     18, 2003, or 5 beds. The Secretary was directed to consider 
     the certain factors in determining whether a hospital is 
     under development, such as the completion of architectural 
     plans, and the status of funding, zoning requirements, and 
     necessary approvals from State agencies.
     Senate Bill
       The prohibition on Medicare and Medicaid referrals to 
     specialty hospitals by physician investors would be effective 
     on and after December 8, 2003. The exception to the 
     definition of specialty hospital would be modified to include 
     those: (1) where the percent investment by physician 
     investors is no greater than the percentage on June 8, 2005; 
     (2) where the percent investment by any physician investor is 
     no greater than the percentage on June 8, 2005; and (3) where 
     the number of operating rooms is not greater than the number 
     on June 8, 2005. The existing requirement concerning 
     permissible changes in the number of beds in order to qualify 
     for the specialty hospital exception would be modified. From 
     December 8, 2003 through June 7, 2005, an acceptable increase 
     in the number of beds would only occur on the main campus of 
     the hospital and could not exceed the greater of 50 percent 
     of the number of beds in the hospital as of November 18, 
     2003, or 5 beds. After June 8, 2005, the number of beds at 
     the specialty hospital would not be able to increase. These 
     amendments would be effective on June 8, 2005.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement directs the Secretary to develop a 
     strategic and implementing plan regarding physician 
     investment in specialty hospitals that addresses issues 
     related to proportionality of investment return, bona fide 
     investments, annual disclosure of investment information, and 
     the provision of Medicaid and charity care by specialty 
     hospitals. An interim report is

[[Page H12695]]

     due within three months and a final report no later than six 
     months after date of enactment. The Secretary will continue 
     the suspension on enrollment of new specialty hospitals until 
     the earlier of the date of submission of the report or 6 
     months after date of enactment. If the Secretary fails to 
     comply with the statutory requirement to submit the final 
     report within the six month time period, then the suspension 
     on enrollment will be extended an additional two months. In 
     developing the strategic and implementing plan the Secretary 
     may waive certain requirements under the Administrative 
     Procedures Act.
     Medicare demonstration projects to permit gainsharing 
         arrangements (Section 5007 of the Conference Agreement, 
         no provision in the Senate bill, and no provision in the 
         House Bill)
     Current Law
       No provision.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement establishes a gainsharing 
     demonstration project to test and evaluate arrangements 
     between hospitals and other providers, including physicians, 
     and practitioners, that govern the utilization of inpatient 
     hospital resources to improve the quality and efficiency of 
     care provided to Medicare beneficiaries and to improve 
     operational efficiency and performance. The Secretary will 
     solicit applications 90 days after enactment, will approve 
     not more than 6 demonstration projects with at least 2 of 
     which will be in a rural area, and will begin on January 1, 
     2007.
       The projects will meet certain requirements to maintain or 
     improve quality while achieving cost savings. Such 
     requirements include arrangements that provide remuneration 
     as a share of savings, a written plan agreement, patient 
     notification, quality and efficiency monitoring, independent 
     review, and referral limitations. Restrictions on incentive 
     payments in a project are waived, and similar protections 
     extend to existing arrangements.
       Not later than December 1, 2006, the Secretary will report 
     to Congress on the number of demonstration projects. Not 
     later than December 1, 2007, the Secretary will provide a 
     project update to Congress including improvements toward 
     quality and efficiency. By December 1, 2008, the Secretary 
     will report to Congress on quality improvement and savings 
     from the program. A final report will be submitted to 
     Congress by May 1, 2010.
     Post-acute care payment reform demonstration (Section 5008 of 
         the Conference Agreement, no provision in the Senate 
         bill, and no provision in the House Bill)
     Current Law
       No provision.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       By January 1, 2008, the Secretary shall establish a 
     demonstration program to better understand costs and outcomes 
     across different post-acute care sites. Under the program, 
     for certain diagnoses specified by the Secretary, an 
     individual receiving treatment for such diagnosis shall 
     receive a comprehensive assessment on the date of discharge 
     of clinical characteristics and patient needs, to determine 
     appropriate placement of the patient in a post-acute care 
     site. The Secretary shall use a standardized patient 
     assessment instrument across all post-acute sites, to measure 
     functional status and other factors during treatment and 
     discharge from each provider. Participants shall provide 
     information on the fixed and variable cost for each 
     individual, and an additional comprehensive assessment shall 
     be provided at the end of the individual's episode of care. 
     The program will operate for a three year period, and shall 
     be conducted with sufficient numbers to determine 
     statistically reliable results.
       No later than 6 months after the end of the program, the 
     Secretary will submit a report to Congress on results and 
     recommendations.

               Subtitle B--Provisions Relating to Part B


                     Chapter 1--Payment Provisions

     Beneficiary Ownership of Certain DME (Section 5101 of the 
         Conference Agreement, Sections 6109 and Section 6116 of 
         Senate bill, no provision in the House bill)
     Current Law
       Medicare Part B pays for certain items of durable medical 
     equipment such as hospital beds, nebulizers and power-driven 
     wheelchairs under the capped rental category. Most items in 
     this category are provided on a rental basis for a period 
     that cannot exceed fifteen months. After using the equipment 
     for ten months, beneficiaries must be given the option of 
     purchasing it effective thirteen months after the start of 
     the rental period. If they choose the purchase option, the 
     title to the equipment is transferred to beneficiaries. If 
     the purchase option is not chosen, the supplier retains 
     ownership of the equipment. Beneficiaries can continue to use 
     it, but Medicare rental payments to the supplier are 
     terminated. In the case of a power-driven wheelchair, the 
     supplier must offer the beneficiary the option of purchasing 
     the equipment when it is first furnished.
       Medicare payments to suppliers for maintenance and 
     servicing differ based on whether the beneficiary has 
     purchased the equipment or whether the supplier continues to 
     own it. In the case of a purchase agreement, payment for 
     repairs and extensive maintenance recommended by the 
     manufacturer is covered. When the equipment remains in the 
     ownership of the supplier and continues to be used by a 
     beneficiary after the fifteen month rental period, Medicare 
     makes a payment to the supplier every six months for 
     servicing and maintenance regardless of whether any 
     maintenance and servicing is performed.
     Senate Bill
       The Senate bill would require the supplier to transfer the 
     title of durable medical equipment in the capped rental 
     category to the beneficiary after a thirteen month rental 
     period. The option for a fifteen month rental period with the 
     supplier retaining ownership of the item would be eliminated. 
     The option for beneficiaries to purchase power-driven 
     wheelchairs when initially furnished would be retained.
       Automatic payments to the supplier every six months for 
     maintenance and servicing would be eliminated. Such payments 
     (for parts and labor not covered by the supplier's or 
     manufacturer's warranty) would only be made if the Secretary 
     determined them to be reasonable and necessary. This 
     amendment would apply to items for which the first rental 
     month occurred on or after January 1, 2006.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate bill. The 
     provisions apply to items for which the first rental month 
     occurs on or after January 1, 2006.
       The agreement further provides that rental payments for 
     oxygen equipment (including portable oxygen equipment) are 
     converted to ownership at 36 months. The supplier is required 
     to transfer the title of the equipment to the beneficiary 
     after a 36 month rental period. After transfer of the title, 
     monthly payments for oxygen contents (in the case of gaseous 
     and liquid oxygen) will continue to be made, as provided for 
     under current law, for the period of medical need. Payments 
     for maintenance and servicing (for parts and labor not 
     covered by the supplier's or manufacturer's warranty) will be 
     made if the Secretary determines them to be reasonable and 
     necessary. The agreement specifies that the provision takes 
     effect on January 1, 2006. In the case of an individual 
     receiving oxygen equipment as of December 31, 2005, the 36-
     month period begins January 1, 2006.
     Adjustments in Payments for Imaging Services (Section 5102 of 
         the Conference Agreement, no provision in the Senate Bill 
         and no provision in the House Bill)
     Current Law
       Medicare has a long-standing policy of reducing payment for 
     multiple surgical procedures performed by the same physician, 
     on the same patient on the same day. Full payment is made for 
     the highest priced procedure, with any subsequent procedure 
     paid at 50%. In 1995, the policy was extended to certain 
     nuclear medicine diagnostic procedures.
       Under the physician fee schedule, diagnostic imaging 
     procedures are priced as follows: (1) the professional 
     component (PC) represents the physician work, i.e. the 
     interpretation; (2) the technical component (TC) represents 
     practice expenses including clinical staff, supplies, and 
     equipment; and (3) the global service which represents both 
     the PC and TC. Diagnostic imaging services, even those paid 
     on contiguous body parts, are generally paid at 100% for each 
     procedure.
       In its March 2005 report, Medicare Payment Policy, the 
     Medicare Payment Advisory Commission recommended that CMS 
     expand its coding edit policy to help the program pay more 
     accurately for multiple imaging services performed during the 
     same encounter. It noted that a number of private plans use 
     coding edits to adjust payments for multiple imaging services 
     performed on contiguous body parts. Private insurers usually 
     pay the full amount for the first service but a reduced 
     amount (usually half) for the technical component of any 
     additional study that is of the same modality. This is based 
     on the premise that there are savings in clerical time, 
     preparation, and supplies.
       In August 2005, CMS issued its proposed physician fee 
     schedule for 2006 (Federal Register, vol. 70, no. 151, 45764-
     46064). CMS noted that its analysis supported a 50% reduction 
     in the TC for the subsequent imaging procedure performed on 
     contiguous body parts. It did not propose to apply the 
     multiple procedure reduction to PC services because it 
     believed that physician work is not significantly affected 
     for multiple procedures. When a global service code is 
     billed, the TC portion, but not the PC portion, would be 
     reduced. CMS identified 11 families of imaging procedures by 
     imaging modality. It recommended extending the multiple 
     procedure TC payment reduction only to procedures involving 
     contiguous body parts within a family of codes, not across 
     families.
       On November 21, 2005, CMS issued its final physician fee 
     schedule regulation for 2006 (Federal Register, vol 70, no. 
     223, 70116-70476). It retained the proposed reduction with 
     modifications. The payment reduction is to be phased-in with 
     a 25% reduction in 2006 and a 50% reduction in 2007. Further, 
     the budget neutrality adjustment is to be applied only to 
     practice expense relative value units rather than to both 
     work and practice expense relative value units.

[[Page H12696]]

       When the Secretary revises the relative values for the 
     work, practice expense and malpractice components of 
     physician payments, the revisions may not change the amount 
     of physician expenditures by more than $20 million. Thus, 
     changes must be budget neutral. When reducing practice 
     expenses for imaging, the Secretary is required to increase 
     practice expenses for other physician services to maintain 
     budget neutrality.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement specifies that, effective for fee 
     schedules established beginning with 2007, the reduced 
     expenditures attributable to the multiple procedure payment 
     reduction for imaging (under the final rule published 
     November 21, 2005) will not be taken into account for 
     purposes of the budget neutrality calculation for fee 
     schedules for 2006 and 2007.
       The agreement further provides that for specified imaging 
     services furnished on or after January 1, 2007, the technical 
     component (including the technical component of the global 
     fee) for a service will be reduced if it exceeds (without 
     regard to the geographic wage adjustment factor) the 
     outpatient department (OPD) fee schedule amount for the 
     service established under the prospective payment system for 
     hospital outpatient departments. In such cases, the Secretary 
     will provide for the use of that OPD amount, adjusted by the 
     geographic adjustment factor under the physician fee 
     schedule. The services this policy applies to are: imaging 
     and computer-assisted imaging services, including X-ray, 
     ultrasound (including echocardiography), nuclear medicine 
     (including positron emission tomography), magnetic resonance 
     imaging, computed tomography, and fluoroscopy. Not included 
     are diagnostic and screening mammography. This change will 
     not be taken into account for purposes of the budget 
     neutrality calculation beginning in 2007.
       This provision moves toward payment neutrality across sites 
     of service delivery.
     Limitation on Payments for Procedures in Ambulatory Surgical 
         Centers (Section 5103 of the Conference Agreement, no 
         provision in the Senate Bill, and no provision in the 
         House Bill)
     Current Law
       Medicare uses a fee schedule to pay for the facility 
     services related to a surgery provided in an ambulatory care 
     surgery center (ASC). The associated physician services 
     (surgery and anesthesia) are reimbursed under the physician 
     fee schedule. CMS maintains a list of approved ASC procedures 
     which is required to be updated every two years. The approved 
     ASC procedures are categorized into one of nine payment 
     groups that comprise the ASC facility fee schedule. The nine 
     payment rates reflect the national median cost of procedures 
     in that group adjusted to reflect geographic price variation.
       The Secretary is required under the MMA to implement a new 
     payment system for ASCs no later than January 2008.
       Medicare reimbursement for hospital outpatient department 
     (OPD) services is based on a fee schedule established by a 
     separate prospective payment system (OPPS). Under OPPS, the 
     unit of payment is the individual service or procedure as 
     assigned to an ambulatory payment classification (APC). The 
     payment rate for each service is determined by multiplying 
     the relative weight for the service's APC by the conversion 
     factor.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       Beginning on January 1, 2007, when the ASC facility payment 
     (without application of any geographic price differences) is 
     greater than the Medicare OPD fee schedule amount established 
     under OPPS (without application of any geographic adjustment) 
     for the same service, the ASC will be paid the OPD fee 
     schedule amount. This adjustment applies to ASC payments 
     until the revised ASC payment system is implemented. Total 
     payments to ASCs will be held budget neutral between the year 
     prior to implementation of the new payment system and the 
     first year of the new payment system.
       This provision moves toward payment neutrality across sites 
     of service delivery.
     Update for Physicians' Services for 2006 (Section 5104 of the 
         Conference Agreement, Section 6105 of Senate bill, and no 
         provision in the House Bill)
     Current Law
       Medicare payments for services of physicians and certain 
     nonphysician practitioners are made on the basis of a fee 
     schedule. The fee schedule assigns relative values to 
     services that reflect physician work (i.e., the time, skill, 
     and intensity it takes to provide the service), practice 
     expenses, and malpractice costs. The relative values are 
     adjusted for geographic variations in costs. The adjusted 
     relative values are then converted into a dollar payment 
     amount by a conversion factor. The conversion factor for 2005 
     is $37.8975.
       The conversion factor is the same for all services. It is 
     updated each year according to a formula specified in law. 
     The intent of the formula is to place a restraint on overall 
     spending for physicians' services. Several factors enter into 
     the calculation of the formula. These include: (1) the 
     sustainable growth rate (SGR) which is essentially a 
     cumulative target for Medicare spending growth over time 
     (with 1996 serving as the base period); (2) the Medicare 
     economic index (MEI) which measures inflation in the inputs 
     needed to produce physicians services; and (3) the update 
     adjustment factor which modifies the update, which would 
     otherwise be allowed by the MEI, to bring spending in line 
     with the SGR target. In no case can the adjustment factor be 
     less than minus seven percent or more than plus three 
     percent.
       The law specifies a formula for calculating the SGR. It is 
     based on changes in four factors: (1) estimated changes in 
     fees; (2) estimated change in the average number of Part B 
     enrollees (excluding Medicare Advantage beneficiaries); (3) 
     10-year rolling average change in real gross domestic product 
     (GDP) growth per capita; and (4) estimated change in 
     expenditures due to changes in law or regulations.
       The SGR target is not a limit on expenditures. Rather, the 
     fee schedule update reflects the success or failure in 
     meeting the target. If expenditures exceed the target, the 
     update for a future year is reduced. This is what occurred 
     for 2002. It was also slated to occur in 2003 and 2004; 
     however, the MMA prevented this from occurring through 2005. 
     A negative 4.4 percent update is slated to occur in 2006.
     Senate Bill
       The Senate bill would specify that the update to the 
     conversion factor in 2006 could not be less than one percent. 
     The provision would further specify that these amendments 
     would not be considered as a change in law for purposes of 
     calculating the SGR.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement specifies that the update for 2006 
     is zero percent. These amendments are not considered as a 
     change in law for purposes of calculating the SGR.
       MedPAC is required to report to Congress by March, 2007 on 
     mechanisms to replace the Sustainable Growth Rate system.
     Three-year Transition of the Hold Harmless Payments for Small 
         Rural Hospitals Under the Prospective Payment System For 
         Hospital Outpatient Department Services (Section 5105 of 
         the Conference Agreement, Section 6106 of the Senate 
         Bill, and no provision of the House Bill)
     Current Law
       The prospective payment system for services provided by 
     hospital outpatient departments (OPO) was implemented in 
     August 2000 for most acute care hospitals. Under hold 
     harmless provisions, as modified by the MMA, rural hospitals 
     with no more than 100 beds and sole community hospitals (SCH) 
     located in rural areas are paid no less under this payment 
     system than they would have received under the prior 
     reimbursement system for covered OPO services provided before 
     January 1, 2006.
     Senate Bill
       The hold harmless provisions governing OPO reimbursement 
     for small rural hospitals and rural SCH would be extended to 
     January 1, 2007.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement establishes that small rural 
     hospitals (with no more than 100 beds that are not SCHs) can 
     receive additional Medicare payments, if their outpatient 
     payments under the prospective payment system are less than 
     under the prior reimbursement system. For calendar year (CY) 
     2006, these hospitals will receive 95 percent of the 
     difference between the prospective payment system and the 
     prior reimbursement system. The hospitals will receive 90 
     percent of the difference in CY2007 and 85 percent of the 
     difference in CY2008
       On November 10, 2005, CMS issued its final hospital 
     outpatient prospective payment system regulation for CY2006 
     (Federal Register, vol. 70, no. 217, 68516-68980). Under this 
     rule, rural sole community hospitals will receive a 7.1 
     percent increase on January 1, 2006.
     Update to the Composite Rate Component of the Basic Case-Mix 
         Adjusted Prospective Payment System for Dialysis Services 
         (Section 5106 of the Conference Agreement, Section 6107 
         of the Senate Bill, no provision in the House Bill)
     Current Law
       The Medicare Prescription Drug, Improvement, and 
     Modernization Act of 2003 (MMA) required the Secretary to 
     establish a basic case-mix adjusted prospective payment 
     system for dialysis services furnished either at a facility 
     or in a patient's home, for services furnished beginning on 
     January 1, 2005. The basic case-mix adjusted system has two 
     components: (1) the composite rate, which covers services, 
     including dialysis; and (2) a drug add-on adjustment for the 
     difference between the payment amounts for separately 
     billable drugs and biologicals and their acquisition costs, 
     as determined by the Inspector General Report.
       The Secretary is required to update the basic case-mix 
     adjusted payment amounts annually beginning with 2006, but 
     only for that portion of the case-mix adjusted system that is 
     represented by the add-on adjustment and not for the portion 
     represented by the composite rate.
     Senate Bill
       The provision would increase the composite rate component 
     of the basic case-mix

[[Page H12697]]

     adjusted system for services beginning January 1, 2006 by 1.6 
     percent above the amount paid for such services furnished on 
     December 31, 2005.
     House Bill
       No provision.
     Conference agreement
       The conference agreement follows the Senate bill.
     Revisions to Payments for Therapy Services (Section 5107 of 
         the Conference Agreement, Section 6108 of Senate Bill and 
         no provision in the House Bill)
     Current Law
       The Balanced Budget Act of 1997 established annual per 
     beneficiary payment limits for all outpatient therapy 
     services provided by non-hospital providers. The limits 
     applied to services provided by independent therapists as 
     well as to those provided by comprehensive outpatient 
     rehabilitation facilities (CORFs) and other rehabilitation 
     agencies. The limits did not apply to outpatient services 
     provided by hospitals.
       Beginning in 1999, there were two beneficiary limits. The 
     first was a $1,500 per beneficiary annual cap for all 
     outpatient physical therapy services and speech language 
     pathology services. The second was a $1,500 per beneficiary 
     annual cap for all outpatient occupational therapy services. 
     Beginning in 2002, the amount would increase by the Medicare 
     economic index (MEI) rounded to the nearest multiple of $10.
       The Balanced Budget Refinement Act of 1999 (BBRA) suspended 
     application of the limits for 2000 and 2001. The Medicare, 
     Medicaid, and SCHIP Benefits Improvement and Protection Act 
     of 2000 (BIPA) extended the suspension through 2002. 
     Implementation of the provision was delayed until September 
     2003. The caps were implemented from September 1, 2003 
     through December 7, 2003. MMA reinstated the moratorium from 
     December 8, 2003 through December 31, 2005. The caps are 
     slated to go into effect beginning January 1, 2006. In the 
     November 2005 final physician fee schedule regulation for 
     2006 CMS announced that the caps would be $1,740 in 2006.
     Senate Bill
       The Senate bill would extend the moratorium for an 
     additional year, through 2006.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement would not extend the therapy cap 
     moratorium. However, the Secretary would be required to 
     implement an exceptions process for expenses incurred in 
     2006. Under the process, a Part B enrollee, or a person 
     acting on behalf of the enrollee, may request an exception 
     from the physical therapy/speech language pathology and 
     occupational therapy caps. The individual may obtain such 
     exception if the provision of services is determined 
     medically necessary. If the Secretary does not make a 
     decision on a request within 10 business days of receipt, the 
     Secretary is deemed to have found the services medically 
     necessary. The provision may be implemented by program 
     instruction or otherwise. The agreement specifies that there 
     can be no administrative or judicial review of the exceptions 
     process (including establishment of the process).
       The agreement requires the Secretary, by July 1, 2006, to 
     implement clinically appropriate coding edits for physical 
     therapy services, occupational therapy services, and speech 
     language pathology services. The edits are to identify and 
     eliminate improper payments. The edits are to include edits 
     of clinically illogical combinations of procedure codes and 
     other edits to control inappropriate billings.


                        Chapter 2--Miscellaneous

     Accelerated Implementation of Income-Related Reduction in 
         Part B Premium Subsidy (Section 5111 of the Conference 
         Agreement, no provision in the Senate Bill, no provision 
         in the House Bill)
     Current Law
       The MMA increased the Part B premiums for higher income 
     enrollees beginning in 2007. In 2007, individuals whose 
     modified adjusted gross income (AGI) exceeds $80,000 and 
     couples whose modified AGI exceeds $160,000 will be subject 
     to higher premium amounts. The increase will be phased-in 
     over five years. During the first year, higher income 
     enrollees will pay premiums ranging from 27 percent to 36 
     percent of the value of Part B. When fully phased-in, higher 
     income individuals will pay premiums ranging from 35 percent 
     to 80 percent of the value of Part B.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The agreement accelerates the phase-in period from five 
     years to three years, with the provision fully effective in 
     2009. In 2007, higher income enrollees will pay total 
     premiums ranging from 28 percent to 43 percent of the total 
     value of Part B. In 2008, enrollees will pay total premiums 
     ranging from 32 percent to 62 percent of the total value of 
     Part B. When fully phased-in in 2009, higher income 
     individuals will pay total premiums ranging from 35 percent 
     to 80 percent of the total value of Part B.
     Medicare Coverage of Ultrasound Screening for Abdominal 
         Aortic Aneurysms (Section 5112 of the Conference 
         Agreement, Section 6117 of the Senate Bill and no 
         provision in the House Bill)
     Current Law
       Medicare provides coverage for services which are 
     reasonable and necessary for the diagnosis or treatment of 
     illness or injury or to improve the functioning of a 
     malformed body member. In addition, Medicare covers certain 
     preventive services specified in law.
     Senate Bill
       The Senate bill would authorize Medicare coverage of 
     ultrasound screening for abdominal aortic aneurysms for 
     individuals who: 1) received referrals for such screenings as 
     a result of an initial preventive physical exam performed for 
     new Medicare enrollees; 2) who had not previously had such a 
     test covered by Medicare; and 3) who had a family history of 
     abdominal aortic aneurysms or who manifested risk factors 
     included in a beneficiary category (not related to age) 
     identified by the United States Preventive Services Task 
     Force.
       An ultrasound screening for abdominal aortic aneurysms 
     would be defined as a procedure using sound waves provided 
     for the early detection of abdominal aortic aneurysms. The 
     Secretary could specify other procedures using alternative 
     technologies which were of commensurate accuracy and cost. 
     The term would include the physician's interpretation of the 
     results of the procedure. Ultrasound screening for abdominal 
     aortic aneurysms would be included in the package of services 
     (including related education, counseling and referral) 
     provided in the initial preventive service exam offered to 
     new Medicare enrollees.
       Payment for services would be made under the physician fee 
     schedule. The provision would specify that payment would not 
     be made for screenings performed more frequently than 
     specified above. The Part B deductible would not apply to 
     these services.
       The Secretary would be required to establish quality 
     assurance standards, in consultation with national medical, 
     vascular technologist and sonographer societies, with respect 
     to individuals (other than physicians) performing ultrasound 
     screening for abdominal aortic aneurysms and diagnostic 
     laboratories. Such standards would specify that the 
     individual or laboratory was certified by the appropriate 
     state licensing or certifying agency or (in the case of a 
     state which did not license or certify such individuals or 
     laboratories) by a national accreditation agency recognized 
     by the Secretary. Medicare payment would not be made where 
     individuals or laboratories performing the screening did not 
     meet the quality assurance standards.
       The bill would require the Secretary (after consultation 
     with national medical, vascular technologist and sonographer 
     societies) to conduct a national education and information 
     campaign to promote awareness among health care practitioners 
     and the general public with respect to the importance of 
     early detection and treatment of abdominal aortic aneurysms. 
     The section would authorize the appropriation of such funds 
     as may be necessary, beginning in FY 2006 and each fiscal 
     year thereafter. The Secretary could use such amounts to make 
     grants to national medical, vascular technologist and 
     sonographer societies to enable them to educate practitioners 
     and providers about matters relating to such aneurysms. Such 
     grants would be made in accordance with procedures and 
     criteria specified by the Secretary.
       The amendments would apply to ultrasound screenings for 
     abdominal aortic aneurysms performed on or after January 1, 
     2007.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate bill with 
     modifications. The agreement does not specify that 
     beneficiary categories recommended for screening cannot 
     include categories related to age. The agreement does not 
     provide for the development of quality assurance standards. 
     Further, it does not include the national education and 
     information campaign.
     Improving Patient Access to, and Utilization of, Colorectal 
         Cancer Screening Under Medicare (Section 5113 of the 
         Conference Agreement, Section 6118 of the Senate Bill and 
         no provision in the House Bill)
     Current Law
       Medicare covers certain cancer screening tests, subject to 
     coverage limitations based on the type of test and the 
     individual's level of risk. Covered tests are fecal occult 
     blood test, flexible sigmoidoscopy, screening colonoscopy, 
     and barium enema. Payments for services are made under the 
     physician fee schedule which assigns relative values to 
     services based on physician work, practice expense costs, and 
     malpractice costs. The relative values are then adjusted for 
     geographic variations in costs. These adjusted relative 
     values are converted into dollar payment amounts by a 
     conversion factor.
       The Secretary is required to review and adjust relative 
     values for specific services periodically, and has 
     established a process for this review and adjustment.
     Senate Bill
       The Senate bill would require the Secretary to establish 
     minimum payment amounts for CPT codes 45378 (diagnostic 
     colonoscopy), 45380 (colonoscopy and biopsy), and 45385 
     (lesion removal, colonoscopy) and HCPCS codes G0105 
     (colorectal screen, high risk individual) and G0121 (colon 
     cancer screen, not high risk individual) for items and 
     services furnished after January 1, 2007. The amounts would 
     reflect a 5 percent increase above the relative value units 
     in effect as the non-facility rates for such codes

[[Page H12698]]

     on December 31, 2006; the revised payment levels would apply 
     to items and services furnished in non-facility settings. 
     Similarly, the provision would require the Secretary to 
     establish minimum payment amounts for the same CPT and HCPCS 
     codes for items and services furnished after January 1, 2007 
     which would reflect a 5 percent increase above the relative 
     value units in effect as the facility rates for such codes on 
     December 31, 2006; the revised payment levels would apply to 
     items and services furnished in facility settings. The 
     payment amounts would be adjusted annually in accordance with 
     the payment update rules under the fee schedule. The 
     Secretary would not take into account the revised payment 
     amounts in determining the amount of payment under the 
     prospective payment system for covered hospital outpatient 
     department services.
       The bill would also authorize Medicare coverage for an 
     office visit or consultation prior to a screening colonoscopy 
     or in connection with a beneficiary's decision to obtain such 
     a screening. The visit or consultation would be for the 
     purpose of beneficiary education, assuring selection of the 
     proper screening test, and securing information relating to 
     the procedure and sedation of the beneficiary. The visit or 
     consultation would be covered regardless of whether the 
     screening was medically indicated for the beneficiary. 
     Payments would equal 80 percent of the lesser of the actual 
     charge or the amount established under the physician fee 
     schedule. Payment amounts established under the fee schedule 
     would be consistent with those established for CPT codes 
     99203 (office/outpatient visit, new patient) and 99243 
     (office consultation). The provision would apply to services 
     furnished on or after January 1, 2007.
       The Part B deductible would not apply to colorectal cancer 
     screening tests, effective January 1, 2007.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement only includes the Senate provision 
     waiving the Part B deductible.
     Delivery of Services at Federally Qualified Health Centers 
         (Section 5114 of the Conference Agreement, Section 6115 
         of the Senate Bill, and no provision in the House Bill)
     Current Law
       The Omnibus Budget Reconciliation Act (OBRA) of 1989 
     amended the Social Security Act (SSA) to create a new 
     category of facility under Medicare and Medicaid known as a 
     federally qualified health center (FQHC). An FQHC is required 
     to provide certain primary care services by physicians and 
     appropriate mid-level practitioners as well as other 
     preventive health services including those required under 
     certain sections of the Public Health Service (PHS) Act 
     (specifically Sections 329, 330, and 340 of the PHS).
       Prior to the enactment of MMA, FQHC services were covered 
     by a skilled nursing facility's (SNF) consolidated billing 
     requirement. FQHC services were bundled into the SNF 
     comprehensive per diem payment for the covered stay and not 
     separately billable. MMA specified that a SNF Part A resident 
     who receives FQHC services from a physician or appropriate 
     practitioner would be excluded from SNF consolidated billing 
     and be paid separately.
     Senate Bill
       The provision would add diabetes self-management training 
     and nutrition therapy benefits, as covered under Medicare, as 
     additional services that may be covered under the all-
     inclusive per visit payment rate for FQHCs. It would allow 
     FQHCs to receive payments for services provided through a 
     health care professional who contracts with the center and 
     would remove restrictions on receipt of homeless grants.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement adopts the Senate provision.
     Waiver of Part B Late Enrollment Penalty for Certain 
         International Volunteers (Section 5115 of the Conference 
         Agreement, Section 6114 of the Senate Bill and no 
         provision in the House Bill)
     Current Law
       Medicare Part B is a voluntary program. Individuals 
     generally enroll in Part B when they turn 65. Individuals who 
     delay enrollment in the program after their initial 
     enrollment period are subject to a premium penalty. This 
     penalty is a surcharge equal to 10 percent of the premium 
     amount for each 12 months of delayed enrollment. There is no 
     upper limit on the amount of the surcharge that may apply. 
     Further, the penalty continues to apply for the entire time 
     the individual is enrolled in Part B. The law establishes 
     certain exceptions to the delayed enrollment penalty. One 
     exception applies to the ``working aged.'' Delayed enrollment 
     is also permitted for certain disabled persons who have group 
     health insurance coverage based on their own or a family 
     member's current employment with a large group health plan.
       Individuals who are permitted to delay enrollment have 
     their own special enrollment periods. A special enrollment 
     period begins when current employment ends or when coverage 
     under the plan ends. The special enrollment period ends eight 
     months later. Individuals who fail to enroll in this period 
     are considered to have delayed enrollment and could become 
     subject to the penalty.
     Senate Bill
       The Senate bill would permit certain individuals to delay 
     enrollment in Part B without a delayed enrollment penalty. 
     Those individuals who volunteer outside of the United States 
     for at least 12 months through a program sponsored by a tax-
     exempt organization defined under section 501(c)(3) of the 
     Internal Revenue Code would be permitted to delay enrollment 
     under Medicare Part B. They would have a 6 month special Part 
     B enrollment period beginning on the first day of the month 
     the individual was no longer in the program. Coverage would 
     begin the month after the individual enrolled. This section 
     would apply to months and special enrollment periods 
     beginning January 2007.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate bill with a 
     modification. The provision applies to individuals who can 
     demonstrate health insurance coverage while volunteering 
     outside the United States..
     Coverage of Marriage and Family Therapist Services and Mental 
         Health Counselor Services Under Part B of the Medicare 
         Program (No provision in the Conference Agreement, 
         Section 6119 of the Senate Bill and no provision in the 
         House Bill)
     Current Law
       Medicare provides coverage for mental health services, 
     subject to certain limitations. Medicare Part B will make 
     direct payments to physicians, psychologists, and clinical 
     social workers for such services. Medicare does not make 
     direct payments for services provided by marriage and family 
     therapists and mental health counselors. Their services are 
     generally paid as incident to a physician's professional 
     services. They may also be included as part of covered 
     facility services such as those provided by a skilled nursing 
     facility.
     Senate Bill
       The Senate bill would include ``marriage and family 
     therapist services'' and ``mental health counselor services'' 
     within the definition of ``medical and other health 
     services'' covered under Medicare Part B. The term marriage 
     and family therapist services would be defined as services 
     performed by marriage and family therapists for the diagnosis 
     and treatment of mental illnesses. Such services would be 
     those which the individual was legally authorized to perform 
     under state law (or the state regulatory mechanism provided 
     by state law) of the state in which the services were 
     performed. Such services would also have to be of the type 
     which would otherwise be covered if furnished by a physician 
     or as incident to a physician's professional services. 
     Payment would only be made if no facility or other provider 
     charged or was paid for such services.
       The term marriage and family therapist would be defined as 
     an individual who: (1) possessed a master's or doctoral 
     degree which qualified the individual for licensure or 
     certification as a marriage and family therapist pursuant to 
     state law; (2) performed at least 2 years of clinical 
     supervised experience in marriage and family therapy after 
     obtaining the degree; (3) was licensed or certified as a 
     marriage and family therapist in the state if such state 
     provided for licensure and certification of marriage and 
     family therapists.
       The provision would define mental health counselor services 
     as services performed by mental health counselors for the 
     diagnosis and treatment of mental illnesses. Such services 
     would be those which the individual was legally authorized to 
     perform under state law (or the state regulatory mechanism 
     provided by state law) of the state in which the services 
     were performed. Such services would also have to be of the 
     type which would otherwise be covered if furnished by a 
     physician or as incident to a physician's professional 
     services. Payment would only be made if no facility or other 
     provider charged or was paid for such services.
       The term mental health counselor would be defined as an 
     individual who: (1) possessed a master's or doctoral degree 
     in mental health counseling or a related field; (2) performed 
     at least 2 years of supervised mental health counselor 
     practice after obtaining the degree; (3) was licensed or 
     certified as a mental health counselor or professional 
     counselor in the state if such state provided for licensure 
     and certification of mental health counselors or professional 
     counselors.
       Payment for covered services would be made under Medicare 
     Part B. Payment would equal the lesser of 80 percent of the 
     actual charge for the service or 75 percent of the amount 
     paid to a psychologist for such services. All services 
     provided by marriage and family therapists and mental health 
     counselors would be paid on an assignment basis. Further, 
     services provided by marriage and family therapists and 
     mental health counselors would be added to the list of 
     services excluded from payment as part of the skilled nursing 
     facility prospective payment system.
       The bill would include services provided by marriage and 
     family therapists and mental health counselors in the 
     definition of covered rural health clinic services. It would 
     modify the definition of the required interdisciplinary team 
     for a hospice program to

[[Page H12699]]

     permit a marriage or family therapist to be on the team 
     instead of a social worker.
       The provision would apply to services provided on or after 
     January 1, 2007.
     House Bill
       No provision.
     Conference Agreement
       No provision.

            Subtitle C--Provisions Relating to Parts A and B

     Home Health Payments. (Section 5201 of the Conference 
         Agreement, Section 6110 of the Senate Bill--with respect 
         to quality of home health services, and no provision in 
         the House Bill)
     Current Law
       The Medicare home health prospective payment system, which 
     was implemented on October 1, 2000, provides a standardized 
     payment for a 60-day episode of care furnished to a Medicare 
     beneficiary. Medicare's payment is adjusted to reflect the 
     type and intensity of care furnished and area wages as 
     measured by the hospital wage index.
       Each year Medicare's payment to home health agencies is 
     updated by the projected annual change in the home health 
     market basket (HHMB), with specified reductions in some 
     years. For the last three calendar quarters of 2004 through 
     2006, the home health update is the HHMB minus 0.8 percentage 
     points. In 2007 and subsequent years, the payment update for 
     home health agencies is equal to the full HHMB.
       The Medicare Prescription Drug Improvement and 
     Modernization act of 2003 provided for a one-year 5% 
     additional payment for home health services furnished in 
     rural areas. The temporary payment began for episodes and 
     visits ending on or after April 1, 2004 and before April 1, 
     2005. It was made without regard to certain budget neutrality 
     provisions and was not included in the base for determination 
     of payment updates.
     Senate Bill
       The Medicare statute would be amended by adding a new 
     Section 1860E-6 which establishes the Home Health Agency 
     Value-Based Purchasing Program. In 2008 and in subsequent 
     years, the Secretary would make value-based payments to those 
     home health agencies that, based on data submitted under the 
     quality measurement system, have either substantially 
     improved quality of care over the prior year, or exceed a 
     threshold established by the Secretary. A majority of the 
     total amount available for value-based payments in any fiscal 
     year would be paid to home health agencies that qualify for 
     payments because they exceed a quality threshold. Starting in 
     2009 and in each subsequent year, the percentage of total 
     value-based payments made to agencies that exceed the quality 
     threshold would be greater than the percentage made in the 
     previous year. To be eligible for a value-based payment, home 
     health agencies would be required to submit the required 
     quality data and attest that it is complete and accurate.
       The total amount of value-based payments made in a year 
     would equal the total funds available for such payments. The 
     Secretary would determine the most appropriate method for 
     making payments. Payments for a year would be required to be 
     made no later than December 31 of the subsequent year. By 
     January 1, 2008, the Secretary would be required to provide 
     each home health agency with a description of how its 
     payments for 2007 would have been affected had the value-
     based purchasing system been in effect that year.
       Value-based payments would be made from Part A and Part B 
     in the same proportion as payments for home health services 
     are made.
       In 2007 and subsequent years, a home health agency that 
     does not submit to the Secretary the required quality data 
     would receive an update of the market basket minus two 
     percentage points. This reduction would only apply to the 
     fiscal year in question. For 2007 and subsequently, each home 
     health agency would be required to submit data necessary for 
     a value-based purchasing system in the form, manner, and time 
     period specified by the Secretary. Procedures for making the 
     data available to the public would be established.
       To fund the program, spending under the trust funds for 
     home health services would be reduced by a percent applied to 
     the standard prospective payment amount made to all agencies 
     that comply with the data submission requirements. The 
     percent reduction would be 1% in 2008, 1.25% in 2009, 1.5% in 
     2010, 1.75% in 2011, and 2% in 2012 and subsequent years.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement eliminates the update for home 
     health payments in 2006. It also provides for a one-year 5% 
     additional payment for home health episodes or visits 
     furnished in a rural area during calendar year 2006.
       The Conference agreement accepts the Senate language with 
     respect to (1) the collection of health care quality data, as 
     determined appropriate by the Secretary, (2) procedures for 
     making the data available to the public, and (3) the 
     reduction of payments to home health agencies that do not 
     submit quality data in 2007 and beyond. The reduction in 
     payments is equal to the market basket minus two percentage 
     points. However the reduction will not be taken into account 
     for calculation of the payment rate in subsequent years.
       The conference agreement directs the Medicare Payment 
     Advisory Commission to submit a report to Congress no later 
     than June 1, 2007 on a value-based purchasing program for 
     home health services. The report is to include 
     recommendations on the structure of the program, the 
     determination of thresholds, the size of value-based 
     payments, sources of funds, and the relationship of payments 
     for improvements in health care quality.
     Revision of Period for Providing Payment for Claims that are 
         not Submitted Electronically (Section 5202 of the 
         Conference Agreement, no provision in the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       Mandatory electronic claims submission went into effect on 
     July 1, 2005 for all providers, with a few exceptions. The 
     exceptions include: (1) small providers with fewer than 25 
     full-time equivalent (FTEs) employees and physicians, 
     practitioners, or suppliers with fewer than 10 FTEs, (2) 
     dentists, and (3) other providers as specified by the Centers 
     for Medicare and Medicaid Services (CMS). Medicare 
     contractors must pay 95% of all ``clean'' paper claims within 
     27-30 days of receipt.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The Conference agreement directs Medicare contractors to 
     delay the payment of claims that are not submitted 
     electronically. The contractors are directed to pay 95% of 
     all ``clean'' claims within 29-30 days of receipt for paper 
     claims.
     Timeframe for Part A and B Payments (Section 5203 of the 
         Conference Agreement, Section 6112(b) of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       Medicare contractors accept, process and pay claims 
     submitted by providers for Medicare-covered services. 
     Medicare contractors must pay interest on claims that are not 
     promptly paid. The contractors must pay 95% of all ``clean'' 
     claims within 14-30 days of receipt for electronically 
     submitted claims, or within 27-30 days of receipt for paper 
     claims. If the payment is not made within that time, interest 
     begins accruing on the day after the required payment date 
     and ends on the date on which the payment is made. The 
     interest rate is set at the higher of the ``private consumer 
     rate,'' or the ``current value of the funds.''
     Senate Bill
       The Senate bill would delay Medicare Part A and B payments 
     by 9 days. Claims that would otherwise be paid on September 
     22, 2006, through September 30, 2006 would be paid on the 
     first business day of October 2006. No interest or late 
     penalty would be paid to an entity or individuals for any 
     delay in a payment during the period.
     House Bill
       No provision.
     Conference agreement
       The conference agreement accepts the Senate provision.
     Medicare Integrity Program Funding (Section 5204 of the 
         Conference Agreement, no provision in the Senate Bill and 
         no provision in the House Bill)
     Current Law
       As part of the Health Insurance Portability and 
     Accountability Act of 1996 (HIPAA), Congress acted to 
     increase and stabilize federal funding for anti-fraud 
     activities. As required by Section 1817(k) of the Medicare 
     law, an expenditure account was established within the 
     Federal Hospital Insurance Trust Fund (the HCFAC account). 
     Certain amounts were appropriated from the Trust Fund for 
     specific activities, including the Medicare Integrity Program 
     (MIP). These amounts have been established as not less than 
     $710 million and not more than $720 million for FY2002 and 
     subsequently.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement would increase MIP funding amounts 
     by $100 million for FY2006.

               Subtitle D--Provisions Relating to Part C

     Phase-out of Risk adjustment budget neutrality in determining 
         the amount of payments to Medicare Advantage 
         organizations. (Section 5301 of the Conference Agreement, 
         Section 6111 of the Senate Bill, and no provision in the 
         House Bill)
     Current Law
       Medicare Advantage payment rates are risk adjusted to 
     control for the variation in the cost of providing health 
     care among beneficiaries. Rates are adjusted by demographic 
     and health status indicators. In the report language to the 
     Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
     of 1999, Congress urged the Secretary to implement a more 
     clinically-based risk adjustment methodology without reducing 
     overall payments to plans. To keep payments from being 
     reduced overall, the Secretary applied a budget neutrality 
     adjustment to the risk adjusted rates. However, the Secretary 
     has

[[Page H12700]]

     proposed to phase-out the budget neutrality adjustment citing 
     studies that show a difference in the reported health status 
     of Medicare Advantage enrollees compared to the reported 
     health status of beneficiaries in traditional Medicare.
     Senate Bill
       Beginning in 2007, this section would specify an adjustment 
     to the benchmarks to phase-out overall increases in MA rates 
     that result from the budget neutral implementation of risk 
     adjustment. In 2007, if the Secretary does not rebase rates 
     to 100% of per capita fee-for-service costs, the MA 
     benchmarks would be equal to the 2006 rates as announced by 
     the Secretary on April 4, 2005, with four adjustments--(1) 
     exclusion of any national adjustments for coding intensity, 
     (2) exclusion of risk adjustment budget neutrality, (3) 
     increase based on the national per capita MA growth 
     percentage, and (4) omission of any adjustments to account 
     for errors in previous years' projections of the national per 
     capita MA growth percentage. If the Secretary does rebase the 
     rates in 2007, the MA benchmark would be set at the greater 
     of either the rate calculated above, or 100% of per capita 
     fee-for-service spending in the area. After 2007, if the 
     Secretary does not rebase rates, the MA benchmarks would be 
     the previous year's benchmark increased by the national per 
     capita MA growth percentage without adjusting for errors in 
     the estimation of the growth percentage for a year before 
     2004. After 2007, if the Secretary rebases rates, the 
     benchmark would be equal to the greater of either the rate 
     calculated above, or 100% of per capita fee-for-service 
     spending.
       The benchmarks described above would be free of the budget 
     neutral risk adjustment. However, the benchmarks would be 
     adjusted so that budget neutrality would be phased-out over 4 
     years. The applicable phase-out factors would be equal to .55 
     in 2007, .40 in 2008, .25 in 2009 and .05 in 2010. This means 
     that in 2007, 55% of the payment to plans would be based on 
     payment rates including the budget neutral risk adjustment, 
     and 45% of the payment to plans would be based on a rate 
     without the budget neutral adjustment. The budget neutrality 
     factor is calculated through a formula that equals the 
     Secretary's estimate of the total amount of payments that 
     would have been made to plans under the demographic risk 
     adjustment system, minus the Secretary's estimate of the 
     payments that would have been made to plans under the health 
     status risk adjustment system without the budget neutrality 
     adjustment, divided by the Secretary's estimate of the total 
     amount of payments that would be made under the health status 
     risk adjustment system without the budget neutrality 
     adjustment. When making this calculation, the Secretary would 
     (a) use a complete set of the most recent and representative 
     MA risk scores available, (b) adjust the risk scores to 
     reflect changes in treatment and coding practices in fee-for-
     service, and (c) adjust the risk scores for differences in 
     coding patterns under Medicare Part A and B compared to 
     Medicare Part C, to the extent the Secretary has identified 
     differences and (d) as necessary, adjust for late data 
     submissions, lagged cohorts, and changes in MA enrollment. 
     The Secretary could take into account estimated health risk 
     of enrollees in preferred provider organizations (including 
     MA regional plans) for the year. The Secretary would be 
     required to conduct an analysis of differences in coding 
     patterns between MA plans and providers under Parts A and B 
     of Medicare using data starting in 2004, and incorporate, to 
     the extent such differences are identified, the findings into 
     calculations of MA benchmarks no later than 2008. Adjustments 
     would be terminated if the total amount of payments adjusted 
     for health status exceeded payments adjusted for 
     demographics.
       The Secretary could not make any adjustments to the budget 
     neutrality factor, other than those specified above. The 
     Secretary's authority to risk adjust MA benchmarks based on 
     100 percent of per capita fee-for-service spending would not 
     be limited by these changes.
       This section also refines adjustments for health status 
     when plans are paid based on their bid amounts (rather than 
     the benchmark). The Secretary would ensure that such risk 
     adjustments reflect changes in the treatment and coding 
     practices between Medicare Part A and Part B relative to 
     Medicare Part C to the extent that the Secretary has 
     identified differences.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement accepts the Senate language in 
     part, with modifications. The conference agreement codifies 
     the phase-out of the budget neutrality factor over 2006 to 
     2010 and outlines the adjustments that can be made to that 
     factor. Under the agreement, the Secretary must conduct an 
     analysis to identify differences in coding patterns between 
     Medicare Advantage plans and fee for service. To the extent 
     that the Secretary identifies any differences, they are to be 
     incorporated into calculations of the risk rates and the 
     budget neutrality factor in 2008, 2009, and 2010. The 
     conferees intend that any adjustments made for differences in 
     coding patterns be made for differences resulting from 
     inaccurate coding. The conference agreement makes no 
     permanent change to Medicare Advantage payment calculations.
     Rural Pace Provider Grant Program (Section 5302 in the 
         Conference Agreement, Section 6113 of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       PACE is a program providing comprehensive Medicare and 
     Medicaid services under a managed care arrangement to 
     individuals over age 55 who are eligible for a nursing home 
     level of care. PACE organizations, which are public or 
     private non-profit entities, receive a fixed monthly Medicare 
     and Medicaid payment to cover a comprehensive set of services 
     for PACE participants. The PACE service package must include 
     all Medicare and Medicaid covered services, and other 
     services determined necessary by the multidisciplinary team 
     for the care of the PACE participant.
     Senate Bill
       This provision would create site development grants, 
     provide technical assistance to established rural PACE 
     providers, and establish a fund to reimburse rural PACE 
     providers for certain outlier costs. A rural area would be a 
     county that is not part of a Metropolitan Statistical Areas 
     (as defined by the Office of Management and Budget) as 
     established for Medicare IPPS payments to acute care 
     hospitals. The Secretary would establish a procedure to award 
     site development grants to be used for expenses incurred in 
     relation to establishing or delivering services in rural 
     areas. Up to 15 qualified PACE providers that serve a rural 
     area, in whole or in part can receive a grant not to exceed 
     $750,000. The Secretary would be appropriated $7.5 million in 
     FY2006 and FY2007 out of the Treasury for these development 
     grants. The appropriated funds would remain available for 
     expenditure until FY 2010. The Secretary would establish a 
     technical assistance program to provide 1) outreach and 
     education to specified entities interested in starting rural 
     PACE programs, and 2) technical assistance necessary to 
     support rural PACE pilot sites. The Secretary would establish 
     an outlier fund for inpatient and related physician and 
     ancillary costs incurred for an eligible participant within a 
     given l2-month period. Outlier costs would be those costs for 
     inpatient and related physician and ancillary services in 
     excess of $50,000 incurred within a given l2-month period for 
     an eligible participant who resides in a rural area. For the 
     first 3 years of its operation, a rural PACE site would 
     receive 80 percent of the outlier costs in excess of $50,000 
     for that period. Total outlier payments for an eligible 
     participant could not exceed $100,000 for the 12-month period 
     used to calculate the payment. No site may receive more than 
     $500,000 in total outlier expense payments in a 12-month 
     period. A rural PACE pilot site would be required to access 
     and exhaust risk reserves held or arranged for the provider 
     and any working capital established through a site 
     development grant prior to receiving any payment from the 
     outlier fund. The Secretary would be appropriated $10 million 
     for FY2006 and FY2007 for the outlier fund. These outlier 
     appropriations would remain available for expenditure through 
     FY2010. The Secretary would be required to submit a report to 
     Congress on the evaluation of the rural PACE pilot sites no 
     later than 60 months from the date of enactment. Any amount 
     paid under this authority would be in addition to Medicare 
     PACE funds paid under Section 1894 of the Social Security Act 
     or Medicaid PACE funds paid for under Section 1934 of the 
     same act.
     Conference Agreement
       The conference agreement adopts the Senate provision with 
     certain exceptions. The Secretary is required to establish a 
     process and criteria to award site development grants to 
     qualified PACE providers that have been approved to serve a 
     rural area. The Secretary is appropriated $7.5 million for 
     FY2006 for the rural site development grants. These 
     appropriated funds would remain available for expenditure 
     through FY2008. The Secretary is appropriated $10 million for 
     FY2006 for the outlier funds. These appropriated funds would 
     remain available for expenditure through FY201O. Rural PACE 
     pilot sites must apply to receive outlier funds and document 
     their incurred costs for the outlier participant in a manner 
     specified by the Secretary.
     Elimination of Medicare Advantage Regional Plan Stabilization 
         Fund (No provision in Conference agreement, Section 
         6112(a) of the Senate Bill, and no provision in the House 
         Bill)
     Current Law
       The Secretary must establish an MA Regional Plan 
     Stabilization Fund to provide incentives for plan entry in 
     each region and plan retention in certain MA regions with 
     below average MA penetration. Initially, $10 billion will be 
     available for expenditures from the Fund beginning on January 
     1, 2007 and ending on December 31, 2013.
       Additional funds will be available in an amount equal to 
     12.5% of average per capita monthly savings from regional 
     plans that bid below the benchmark.
     Senate Bill
       The Senate bill would repeal the stabilization fund 
     retrospectively as of the enactment of the Medicare 
     Prescription Drug, Improvement, and Modernization Act of 
     2003.
     House Bill
       No provision.
     Conference agreement
       No provision.

[[Page H12701]]

     Establishment of Medicare Value-based Purchasing Programs. 
         (No provision in the Conference Agreement, Section 6110 
         of Senate Bill and no provision in the House Bill)
     Subsection (a) Establishment of Medicare Value-Based 
         Purchasing Programs Part E Value-Based Purchasing 
         Programs--Quality Measurement Systems for Value-Based 
         Purchasing Programs. (No provision in the Conference 
         Agreement, Section 6110 of the Senate Bill and no 
         provision in the House Bill)
     Current Law
       No provision.
     Senate Bill
       Section 6110 would amend the Medicare statute by 
     redesignating the existing Section 1860E as Section 1860F and 
     by adding a new Section 1860E which requires the Secretary to 
     establish value-based purchasing systems for different 
     providers.
       Subsection (a) of Section 6110 would create Section 1860E-1 
     in the Medicare statute and would require the Secretary to 
     develop provider-specific quality measurement systems for 
     making value-based payments to hospitals, physicians and 
     practitioners, Medicare Advantage (MA) and Part D 
     prescription drug plans, end stage renal disease providers 
     and facilities, and home health agencies. Measures for each 
     quality system would be required to (1) be evidence-based; 
     (2) be easy to collect and report; (3) address process, 
     structures, outcomes, beneficiary experience, efficiency, 
     equity, and overuse and underuse of health care; and (4) 
     include at least one measure of health information technology 
     infrastructure during the first year of implementation. 
     Additional measures would be added in subsequent years. 
     Measures would include those that assess the quality of care 
     furnished to older, frail individuals and those with multiple 
     complex chronic conditions. By 2008, hospital quality systems 
     would be required to include at least 5 measures that take 
     into account the unique characteristics of small hospitals 
     located in rural areas and frontier areas.
       Before a measure would be used to determine whether a 
     provider receives a value-based payment, data on the measure 
     must have been collected for at least a twelve month period. 
     Each set of quality measures selected for specific categories 
     of providers would be able to vary in their application to an 
     individual or entity depending of the type, size, scope and 
     volume of services provided by the individual or entity.
       The Secretary would be required to establish risk 
     adjustment procedures to control for differences in 
     beneficiaries' health status and characteristics and to 
     assign weights to measures used by each quality system. If 
     appropriate, measures of clinical effectiveness would be 
     weighted more heavily than measures of beneficiary 
     experience; and measures of risk adjusted outcomes would be 
     weighted more heavily than measures of process. The Secretary 
     would be required to update the quality measurement system, 
     but not more often than every twelve months. The update would 
     permit a comparison of data from one year to the next. The 
     Secretary would be required to use the most recent quality 
     data for a provider type. However, if the Secretary 
     determines that there is insufficient data because of the low 
     service volume, the Secretary would be able to aggregate data 
     across more than one fiscal or calendar year.
       In developing and updating each quality measurement system, 
     the Secretary would be required to consult with provider-
     based groups and clinical specialty societies. The Secretary 
     would also take into account quality measures developed by 
     nationally recognized entities, existing quality measurement 
     systems, reports by MedPAC required by this Act, results of 
     relevant demonstrations, and the report on Health Care 
     Performance Measures being developed by the Institute of 
     Medicine under section 238 (b) of the MMA. In implementing 
     each quality measurement system, the Secretary would be 
     required to consult with entities that have developed 
     strategies for quality measurement and reporting as well 
     as a wide range of stakeholders.
       By July 1, 2006, the Secretary would be required to have in 
     place an arrangement with an entity that will provide the 
     Secretary with advice and recommendations about the 
     development and updating of the quality measurement systems 
     established by this Act. This arrangement, with a private 
     nonprofit entity, would meet a specific set of requirements. 
     For FY2006 and FY2007, $3,000,000 is authorized for this 
     purpose, with the amount in subsequent years increased by the 
     Consumer Price Index for urban consumers.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     Physician and practitioner value-based purchasing program

     Current Law
       No provision.
     Senate Bill
       A new Section 1860E-3 would direct the Secretary to 
     establish a program under which value-based payments are 
     provided each year to physicians and practitioners that 
     demonstrate the provision of high quality health care to 
     individuals enrolled under part B. In addition, MedPAC would 
     be required to conduct five studies evaluating the new 
     program.
       The first study would examine how the Medicare value-based 
     purchasing programs under this section will affect Medicare 
     beneficiaries, Medicare providers, and Medicare financing, 
     including the impact of these programs on the access of such 
     beneficiaries to items and services, the volume and 
     utilization of such items and services, and low-volume 
     providers. The initial report would be due to Congress and 
     the Secretary no later than March 1, 2008, and a final report 
     due no later than June 1, 2012.
       The second study would examine the advisability and 
     feasibility of establishing a value-based purchasing program 
     for critical access hospitals (CAHs). This report would be 
     due to Congress and the Secretary no later than March 1, 
     2007.
       The third study would address the advisability and 
     feasibility of including renal dialysis facilities in the 
     value-based purchasing program described in this section or 
     establishing a separate value-based purchasing program for 
     renal dialysis facilities under this title. This report would 
     be required to be submitted to Congress and the Secretary no 
     later than June 1, 2007.
       The fourth study would be a report on the implementation of 
     an end-stage renal disease (ESRD) provider and facility 
     value-based purchasing program. This report would take into 
     account the results to date of the demonstration of bundled 
     case-mix adjusted payment system for ESRD services under 
     Section 623(e) of MMA and would include issues for the 
     Secretary to consider in operating the ESRD provider and 
     facility value-based purchasing program as well as 
     recommendations on such issues. This report would be required 
     to be submitted to Congress and the Secretary no later than 
     June 1, 2008.
       The fifth study, due to Congress and the Secretary by June 
     1, 2007, would report on the advisability and feasibility of 
     establishing a value-based purchasing program for skilled 
     nursing facilities (SNFs).
       The value-based purchasing program would be established so 
     that value-based payments will be made initially in 2009 and 
     in each subsequent year. The definition of a physician would 
     not be changed as a result of this section and would remain 
     as given in current law (section 1861(r)). The term 
     `practitioner' would mean: (i) a practitioner defined under 
     current law; (ii) a physical therapist; (iii) an occupational 
     therapist; and (iv) a qualified speech-language pathologist. 
     The Secretary would be charged with establishing procedures 
     for the identification of physicians and practitioners for 
     payment purposes under this section, such as through 
     physician or practitioner billing units or other units.
       The value-based payments would be based on either relative 
     or absolute standards. The Secretary would be able to make a 
     value-based payment to a physician or a practitioner if both 
     the quality and efficiency of care to an individual enrolled 
     under Part B has improved substantially or has exceeded an 
     established threshold. In determining which physicians and 
     practitioners would qualify for a value-based payment, the 
     Secretary would be required to use both the quality 
     measurement system developed for this section with respect to 
     the quality of the care provided by the physician or 
     practitioner and the comparative utilization system developed 
     under this section with respect to the efficiency of such 
     care.
       In determining the amount of award and the allocation of 
     awards under the value-based purchasing program, the 
     Secretary would determine both the amount of a value-based 
     payment provided to a physician or a practitioner and the 
     allocation of the total amount available for value-based 
     payments for any year between payments with respect to 
     physicians and practitioners that meet the quality threshold 
     requirements described above.
       In determining the amount and allocation of the value-based 
     payments for physicians and practitioners who exceed the 
     threshold that allows them to receive such payments, the 
     Secretary would ensure that a majority of the total amount 
     available for value-based payments for any year is provided 
     to physicians and practitioners who meet the threshold for 
     receiving such payments. Additionally, the percentage of 
     value-based payments would not be able to decrease. For every 
     year beginning in 2010, the Secretary would be required to 
     ensure that the percentage of the total amount available for 
     value-based payments for any year that is used to make 
     payments to physicians and practitioners is greater than the 
     previous year's percentage.
       In order for a physician or a practitioner to be eligible 
     for a value-based payment for a year, the physician or 
     practitioner would be required to submit quality data with 
     respect to that year, and provide the Secretary (under 
     procedures established by the Secretary) with an attestation 
     that the data submitted is complete and accurate.
       The Secretary would be required to establish value-based 
     payments such that the estimated total amount of the value-
     based payments is equal to the total amount of available 
     funding for value-based payments for the year. The payment of 
     value-based payments would be based on such a method as the 
     Secretary determines appropriate, and the Secretary would 
     ensure that value-based payments with respect to a year 
     are made by not later than December 31 of the subsequent 
     year.
       The Secretary, in consultation with relevant unnamed 
     stakeholders, would develop a comparative utilization system 
     for purposes of providing value-based payments. The resulting 
     comparative utilization system would measure the efficiency 
     of the care

[[Page H12702]]

     provided by a physician or practitioner. Under this 
     comparative utilization system, the Secretary would select 
     the measures of efficiency and review the most recent claims 
     data with respect to services furnished or ordered by 
     physicians and practitioners to determine utilization 
     patterns and efficiency. The Secretary would establish risk 
     adjustment procedures, as appropriate, to control for 
     differences in beneficiary health status and beneficiary 
     characteristics.
       Beginning in 2007, the Secretary would provide physicians 
     and practitioners with annual reports on the utilization of 
     items and services under this title based upon the review of 
     claims data. The 2007 and 2008 reports would be confidential 
     and not be made available to the public. Not later than March 
     1, 2009, the Secretary would provide each physician and 
     practitioner with a description of the Secretary's estimate 
     of how payments to the physician or practitioner would have 
     been affected with respect to items and services furnished in 
     2008 if the value-based payment program had been in effect in 
     2008.
       Payments to physicians and practitioners under the value-
     based payment program would be made from the Federal 
     Supplementary Medical Insurance (Part B) Trust Fund. The 
     total amount available for value-based payments with respect 
     to a year would be equal to the amount of the reduction in 
     expenditures under the Federal Supplementary Medical 
     Insurance Trust Fund in the year as a result of the 
     amendments made by Section 6110(c)(2) of the bill, as 
     estimated by the Secretary.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     Subsection (c) physicians and practitioners
       (1) Voluntary submission of physician and practitioner 
           quality data
     Current Law
       No provision.
     Senate Bill
       In 2007 and in subsequent years, physicians and providers 
     who do not submit the required quality data would receive an 
     update to the conversion factor minus two percentage points. 
     This reduction would only apply to the fiscal year in 
     question. In 2007 and subsequently, physicians and 
     practitioners would be required to submit appropriate data 
     necessary for a value-based purchasing system in the 
     specified form, manner, and time of the data submission as 
     determined by the Secretary. Procedures for making the data 
     available to the public would be established. These 
     procedures would be required to provide the physicians and 
     practitioners with an opportunity to review the data before 
     it is released to the public. The Secretary would be allowed 
     to make exceptions to the requirement for making data 
     available to the public and would take into account the size 
     and specialty representation of the practice involved when 
     providing such exceptions.
     House Bill
       No provision.
     Conference Agreement
       No provision.
       (2) Reduction in conversion factor for physicians and 
           practitioners that submit quality data in order to fund 
           program
     Current Law
       Medicare payments under Part B are based on a fee schedule. 
     The fee schedule reflects a set of weights that vary across 
     the many procedures that encompass the range of activities 
     and services that physicians and practitioners provide. These 
     relative weights are converted to dollar amounts for payment 
     under Medicare by applying a multiplicative conversion 
     factor. The conversion factor is updated each year according 
     to a formula that aims to place a restraint on overall 
     increases in Medicare spending for Part B services.
     Senate Bill
       To fund the value-based purchasing program for physicians 
     and practitioners, the conversion factor would be reduced as 
     follows: 1.0% in 2009, 1.25% in 2010, 1.5% in 2011, 1.75% in 
     2012, and 2.0% in 2013 and subsequent years.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     ESRD provider and facility value-based purchasing program

     Current Law
       No provision.
     Senate Bill
       Section 1680E-5. Beginning in 2007, the Secretary would 
     establish a program under which value-based payments are 
     provided each year to providers of services and renal 
     dialysis facilities that provide services to ESRD individuals 
     enrolled under part B and that demonstrate the provision of 
     high quality health care. Facilities with at least 50% of 
     their patients under the age of 18, as well as those 
     providers and facilities currently participating in the 
     bundled case-mix demonstration are excluded from this 
     program.
       Value-based payments would be made to a provider or 
     facility, if the Secretary determines that the quality of 
     care in that year has substantially improved over the prior 
     year or exceeds a threshold established by the Secretary, 
     using the quality measurement system.
       The Secretary would determine the amount of a value-based 
     payment and the allocation of the total amount available for 
     all such payments, subject to certain requirements. The 
     Secretary would ensure that the majority of the total amount 
     available is awarded to those providers of services and renal 
     dialysis facilities who provide high quality services. For 
     2007, the entire amount would be available for those who meet 
     the requirements. Beginning in 2009, the percentage of the 
     total amount available would be provided to those who 
     improved in meeting such requirements relative to the 
     previous year.
       Beginning in 2007, each provider of services and renal 
     dialysis facility would be required to submit data that the 
     Secretary determines is appropriate for the measurement of 
     health outcomes and other indices of quality, including data 
     necessary for the operation of the program. A provider or 
     facility would be required to submit this data, in order to 
     be eligible for a value-based payment for a year. The 
     Secretary would establish procedures for making submitted 
     data available to the public in a clear and understandable 
     form and would ensure that a provider or facility first has 
     the opportunity to review the data. The provider or facility 
     would be required to provide an attestation that the data is 
     complete and accurate.
       The Secretary would establish payment amounts so that, as 
     estimated by the Secretary, the total amount of value-based 
     payments made in a year is equal to the total amount 
     available. The payment of the awards would be based on a 
     method as determined by the Secretary and must be paid no 
     later than December 31 of the subsequent year. The amount 
     available for value-based payments would be equal to the 
     amount of the reduction in expenditures under the Federal 
     Supplementary Medical Insurance (SMI) Trust Fund, as 
     estimated by the Secretary. Payments to providers of services 
     and renal dialysis facilities, under this section, would be 
     made from the Federal SMI Trust Fund.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     Subsection (e) ESRD

     Providers and facilities
     Current Law
       No provision.
     Senate Bill
       No later than July 31, 2006, the Secretary would establish 
     procedures for providers of services and renal dialysis 
     facilities, who are paid based on the case-mix adjusted 
     prospective payment system, to submit data that permits the 
     measurement of health outcomes and other indices of quality.
       In the case of any payment for an item or service furnished 
     on or after January 1, 2007, the case-mix adjusted 
     prospective payment amount would be reduced by the applicable 
     percent, but only for those providers of services or renal 
     facilities included in the value-based program. The 
     applicable percent would be 1% for 2007, 1.25% for 2008, 1.5% 
     for 2009, 1.75% for 2010, and 2% for each year thereafter.
       Beginning January 1, 2007, the Secretary would implement a 
     value-based purchasing program for providers and facilities 
     participating in the bundled case-mix demonstration (as 
     established under Section 623 of the Medicare Prescription 
     Drug, Improvement, and Modernization Act of 2003), in a 
     manner similar to the value-based program established under 
     Section 1860E-5 of this bill, including the funding of the 
     program.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     PPS Hospital value-based purchasing program
     Current Law
       No provision.
     Senate Bill
       The Medicare statute would be amended by adding a new 
     Section 1860E-2 which establishes the hospital value-based 
     purchasing program for inpatient hospital services, starting 
     FY2007. The program would make value-based payments to 
     hospitals based on data reported under the quality 
     measurement system established by the Secretary. Hospitals 
     paid under Medicare's prospective payment system (PPS) that 
     have substantially improved the quality of care over the 
     prior year or exceeded an established quality threshold would 
     receive a value-based payment as determined by the Secretary. 
     A majority of the total amount available for value-based 
     payments in any fiscal year would be paid to hospitals that 
     are receiving such payments for exceeding a quality 
     threshold. Starting in FY2008, the percentage of the total 
     amount for value-based payments in any fiscal year that is 
     paid to such hospitals would be greater than the equivalent 
     percentage paid in the previous year. Hospitals would be 
     required to comply with all the quality data reporting 
     requirements and attest to the accuracy of the data in order 
     to be eligible for a value-based payment. The total amount of 
     value-based payments in a fiscal year would equal the total 
     amount of available funding for such payments for that year. 
     The payments would be based on the methods determined by the 
     Secretary and would be made to hospitals no

[[Page H12703]]

     later than the close of the following fiscal year. No later 
     than January 1, 2007, the Secretary would provide each 
     hospital with a description of how its payments for FY2006 
     would have been affected had the value-based payment program 
     been in effect that fiscal year.
       Value-based payments in a fiscal year would be made from 
     Medicare's Part A Trust fund and would equal specified 
     reductions in those trust fund expenditures as established in 
     Section 6110(b) of the bill.
     House Bill
       No provision.
     Conference Agreement
       See Section 5001 of the Conference Agreement.
       Plan value-based purchasing program
     Current Law
       No provision.
     Senate Bill
       A new Section 1860E-4 would require the Secretary to 
     establish a program to award value-based payments to Medicare 
     Advantage (MA) organizations that provide high quality health 
     care. Payments would start in 2009, and continue each year 
     thereafter. The program would apply to both MA regional and 
     local plans. It also would apply to reasonable cost contract 
     plans, except for provisions that would require plans to 
     submit data two years prior to the start of the program, and 
     provisions relating to plan bids.
       The Secretary would make payments for each plan offered by 
     an MA organization if the plan substantially improved over 
     the prior year, or exceeded a minimum threshold. The 
     Secretary would use measures of quality developed for the 
     plan value-based payments system (Section 1860E-l) and ensure 
     that awards are based on data from a full 12-months when 
     making a comparison against a threshold, and 24-months when 
     measuring improvement over a prior year.
       The Secretary would determine the amount of the value-based 
     payments, but must ensure that the majority of funds go to 
     plans that receive a payment because their health measures 
     exceeded a threshold. In 2010 and each subsequent year, the 
     percentage of the total amount available is greater than the 
     percentage in a previous year.
       Value-based payments may only be used to invest in quality 
     improvement programs or to enhance beneficiary benefits.
       To be eligible for value-based payments, an MA plan or 
     reasonable cost contract would be required to have collected, 
     analyzed and reported the required data for the two previous 
     years. Also, an MA plan would be required to provide the 
     Secretary with an attestation that the value-based payment 
     program including payment adjustments made by reason of 
     Section 6110(d)(2)(A) had no effect on the integrity and 
     actuarial soundness of the plan's bid.
       The Secretary would ensure that the total of value-based 
     payments is equal to the amount made available for those 
     payments. Payments for a particular year would be required to 
     be made not later than March 1 of the subsequent year, in a 
     manner determined by the Secretary.
       By March 1, 2009, the Secretary would provide each MA 
     organization with an estimate of how plan payments would have 
     been affected if the value-based payment system had been in 
     effect in 2008.
       The amount available for value-based payments would be 
     equal to the amount of the reduction in expenditures under 
     the Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund as a result of 
     amendments to fund the value-based payment system, as 
     estimated by the Secretary. Payments to MA organizations 
     would be drawn from the two trust funds in proportion to the 
     relative weight that part A and part B benefits represent of 
     the total actuarial value of Medicare benefits.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     Home Health Agency Value-based Purchasing Program
     Current Law
       No provision.
     Senate Bill
       The Medicare statute would be amended by adding a new 
     Section 1860E-6 which establishes the Home Health Agency 
     Value-Based Purchasing Program. In 2008 and in subsequent 
     years, the Secretary would make value-based payments to those 
     home health agencies that, based on data submitted under the 
     quality measurement system, have either substantially 
     improved quality of care over the prior year, or exceed a 
     threshold established by the Secretary. A majority of the 
     total amount available for value-based payments in any fiscal 
     year would be paid to home health agencies that qualify for 
     payments because they exceed a quality threshold. Starting in 
     2009 and in each subsequent year, the percentage of total 
     value-based payments made to agencies that exceed the quality 
     threshold would be greater than the percentage made in the 
     previous year. To be eligible for a value-based payment, home 
     health agencies would be required to submit the required 
     quality data and attest that it is complete and accurate.
       The total amount of value-based payments made in a year 
     would equal the total funds available for such payments. The 
     Secretary would determine the most appropriate method for 
     making payments. Payments for a year would be required to be 
     made no later than December 31 of the subsequent year. By 
     January 1, 2008, the Secretary would be required to provide 
     each home health agency with a description of how its 
     payments for 2007 would have been affected had the value-
     based purchasing system been in effect that year.
       Value-based payments would be made from Part A and Part B 
     in the same proportion as payments for home health services 
     are made.
     House Bill
       No provision.
     Conference Agreement
       No provision.

                       Subsection (b).--Hospitals

       (1) Voluntary submission of hospital quality data
     Current Law
       Each year, Medicare's operating payments to acute general 
     hospitals are increased or updated by a factor that is 
     determined, in part, by the projected annual change in the 
     hospital market basket (MB). Congress establishes the update 
     for Medicare's inpatient prospective payment system (IPPS) 
     for operating costs, often several years in advance. An IPPS 
     hospital will receive an operating update of the MB from 
     FY2005 through FY2007 if it submits data on the 10 quality 
     indicators established by the Secretary as of November 1, 
     2003. The Secretary will specify the form, manner, and time 
     of the data submission. A hospital that does not submit data 
     to the Secretary will receive an update of the MB minus 0.4 
     percentage points for the fiscal year in question. The 
     Secretary will not take into account this reduction when 
     computing the applicable percentage increase in subsequent 
     years. For FY2008 and subsequent fiscal years, hospitals will 
     receive an update of the MB.
     Senate Bill
       In FY2007 and subsequent years, an IPPS hospital that does 
     not submit the required quality data would receive an update 
     of the MB minus two percentage points. This reduction would 
     only apply to the fiscal year in question. In FY2007 and 
     subsequently, an IPPS hospital would be required to submit 
     appropriate data necessary for a value-based purchasing 
     system in the specified form, manner, and time of the data 
     submission as determined by the Secretary. Procedures for 
     making the data available to the public would be established. 
     These procedures would be required to provide the hospitals 
     with an opportunity to review the data before it is released 
     to the public.
     House Bill
       No provision.
     Conference Agreement
       No provision.
       (2) Reduction in outlier payments in order to fund program
     Current Law
       Outlier payments are intended to protect IPPS hospitals 
     from the risk of financial losses associated with patients 
     with exceptionally high costs or unusually long stays. 
     Medicare cases qualify for outlier payments if they exceed a 
     threshold or fixed loss amount that is established each year. 
     As directed by statute, the total amount of any outlier 
     payments for any year should equal no less than 5 percent nor 
     more than 6 percent of total projected operating diagnosis 
     related group (DRG) payments. Outlier payments are financed 
     by a reduction in the national average standardized amount, 
     typically set at 5.1 percent.
     Senate Bill
       Outlier payments would be established as no less than 5 
     percent and no more than 6 percent for fiscal years prior to 
     2007. In FY2007, outlier payments would be established as no 
     less than 4 percent and no more than 5 percent. In FY2008, 
     outlier payments would be established as no less than 3.75 
     percent and no more than 4.75%. In FY2009, outlier payments 
     would be established as no less than 3.5% and no more than 
     4.5 percent. In FY2010, outlier payments would be established 
     as no less than 3.25 percent and no more than 4.25 percent. 
     In FY2011 and in subsequent years, outlier payments would be 
     established as no less than 3% and no more than 4%.
       The Secretary would be directed to reduce the average 
     standardized amount by certain percentages to fund outlier 
     payments and the hospital value-based purchasing program. The 
     reduction factor will be equal to a calculation where the 
     numerator is the sum of the additional outlier payments (as 
     discussed in the preceding paragraph) plus a specified 
     percentage of total projected DRG prospective payment rates 
     divided by the total projected DRG prospective payment rates. 
     The specific percentages would be 0 percent for fiscal years 
     prior to 2007, 1 percent in FY2007, 1.25 percent in FY2008, 
     1.5 percent in FY2009, 1.75 percent in FY2010, and 2 percent 
     in FY2011 and in subsequent years.
     House Bill
       No provision.
     Conference Agreement
       No provision.
       (3) Value-based purchasing demonstration program for 
           critical access hospitals
     Current Law
       No provision.
     Senate Bill
       The Secretary, within six months from enactment, would be 
     required to establish a

[[Page H12704]]

     two-year value-based payment demonstration program at six 
     representative CAHs, using such funds as are necessary from 
     the Part A trust fund. The Secretary would be required to 
     report to Congress with recommendations within six months of 
     completing the demonstration.
     House Bill
       No provision.
     Conference Agreement
       No provision.

                         Subsection (d)--Plans

       (1) Submission of quality data
     Current Law
       Each Medicare Advantage (MA) organization has an ongoing 
     quality improvement program. MA private fee-for-service 
     plans, MSA plans and Medicare cost reimbursement plans are 
     exempt from this requirement. Each MA organization collects, 
     analyses and reports health outcomes and quality data. The 
     quality improvement program for local preferred provider 
     organizations only applies to providers that have contracts 
     with the organization. The Secretary can collect only the 
     types of data that were collected by the Secretary as of 
     November 1, 2003. The Secretary can collect other types of 
     data only after consulting with MA organizations and private 
     accrediting bodies, and submitting a report to Congress.
     Senate Bill
       Beginning on or after January 1, 2006, the Secretary would 
     also collect data necessary for the plan value-based 
     purchasing program (Section 1860E-4). The Secretary would 
     establish requirements for MA private fee-for-service plans 
     and cost reimbursement plans with respect to the collection, 
     analysis and reporting of data on health outcomes and 
     quality. The Secretary would establish procedures for making 
     health outcomes and quality data available to the public in a 
     clear and understandable form. Prior to the data being made 
     public, the Secretary would ensure that an MA organization 
     has the opportunity to review the data for the plans it 
     offers. The Secretary may change the type of data collected 
     for the value-based purchasing program after complying with 
     requirements for the development, update and implementation 
     of the program.
       The Secretary would take into account the data reporting 
     requirements that plans must comply with under other federal 
     and state programs and in the commercial market when 
     establishing a time frame for data reporting requirements 
     under the new program.
     House Bill
       No provision.
     Conference Agreement
       No provision.
       (2) Reduction in payments to organizations in order to fund 
           program
     Current Law
       No provision.
     Senate Bill
       For those providers included in the value-based program, 
     including reasonable cost contracts, the monthly payment to 
     plans would be reduced by 1% in 2009, 1.25% in 2010, 1.5% in 
     2011, 1.75% in 2012, and 2.0% for 2013 and each subsequent 
     year. These reductions would not have any effect on 
     determining whether the risk adjusted benchmark exceeds a 
     plan's risk adjusted bid, or the amount of the difference.
     House Bill
       No provision.
     Conference Agreement
       No provision.
       (3) Requirements for reporting on use of value-based 
           payments
     Current Law
       No provision.
     Senate Bill
       Beginning on or after January 1, 2011, MA plans would 
     submit information describing how the organization will use 
     any value-based payments received under the program. This 
     information would be submitted by plans at the same time they 
     submit plan bids. Beginning in 2010, not later than July 1 of 
     each year, any reasonable cost reimbursement contract that 
     received a value-based payment would submit a report to the 
     Secretary describing how the organization will use the value-
     based payment.
     House Bill
       No provision.
     Conference Agreement
       No provision.

                  Subsection (1) Home Health Agencies

     Value-based purchasing program for home health agencies
     Current Law
       No provision.
     Senate Bill
       In 2007 and subsequent years, a home health agency that 
     does not submit to the Secretary the required quality data 
     would receive an update of the market basket minus two 
     percentage points. This reduction would only apply to the 
     fiscal year in question. For 2007 and subsequently, each home 
     health agency would be required to submit data necessary for 
     a value-based purchasing system in the form, manner, and time 
     period specified by the Secretary. Procedures for making the 
     data available to the public would be established.
       To fund the program, spending under the trust funds for 
     home health services would be reduced by a percent applied to 
     the standard prospective payment amount made to all agencies 
     that comply with the data submission requirements. The 
     percent reduction would be 1 percent in 2008, 1.25 percent in 
     2009, 1.5 percent in 2010, 1.75 percent in 2011, and 2 
     percent in 2012 and subsequent years.
     House Bill
       No provision.
     Conference Agreement
       See Section 5201 of the Conference Agreement.

               Subsection (g) Skilled Nursing Facilities

       (1) Requirement for skilled nursing facilities to report 
           functional capacity of medicare residents upon 
           admission and discharge
     Current Law
       Medicare law requires nursing homes to conduct a 
     comprehensive, accurate, standardized, reproducible 
     assessment of each resident's functional capacity. Under the 
     law, this assessment must describe the resident's capability 
     of performing daily life functions and significant 
     impairments in functional capacity and be based on a uniform 
     minimum data set specified by the Secretary, or specified by 
     the state with the Secretary's approval. If specified by a 
     state, it must be consistent with the minimum data set of 
     core elements, common definitions, and utilization 
     guidelines.
       As a result, the Minimum Data Set (MDS), designed by the 
     Secretary, consists of a core set of screening, clinical and 
     functional status elements, including common definitions and 
     coding categories which form the foundation of the 
     comprehensive assessment for all residents of long-term care 
     facilities certified to participate in Medicare or Medicaid. 
     The items in the MDS standardize communication about resident 
     problems and conditions within facilities, between 
     facilities, and between facilities and outside agencies. MDS 
     is designed to facilitate and standardize resident 
     assessments, which are structured, problem-oriented 
     frameworks for organizing MDS information, and examining 
     additional clinically relevant information about an 
     individual. These resident assessments help identify social, 
     medical and psychological problems and form the basis for 
     individualized care planning. MDS is also used as a data 
     collection tool to classify Medicare and Medicaid residents 
     into the Resource Utilization Groups (RUG-III). The RUG-III 
     Classification system is used in the PPS for nursing 
     facilities, hospital swing bed programs, and in many State 
     Medicaid case mix payment systems to group residents into 
     similar resource usage categories for the purposes of 
     reimbursement.
       In general, MDS resident assessments are conducted on the 
     5th, 14th, 30th, 60th, and 90th days of post-hospital SNF 
     care. SNFS also conduct other assessments that may be needed 
     to account for changes in patient care needs.
     Senate Bill
       This provision would amend section 1819(b) of the Social 
     Security Act by adding a requirement that on or after October 
     1, 2006, a SNF would be required to submit a report to the 
     Secretary on the functional capacity of each resident who is 
     entitled to SNF benefits at the time of his or her admission 
     and discharge. This report would be required to be submitted 
     within 10 days of the admission or discharge as the case may 
     be.
     House Bill
       No provision.
     Conference Agreement
       No provision.
       (2) Voluntary submission of skilled nursing facility data
     Current Law
       As described above, the MDS submitted to CMS by states is 
     intended to provide information on the quality of care 
     provided to residents in SNFs. In recent years, CMS has 
     attempted to make available additional quality measures. CMS 
     posts data on nursing home's care records from complaint 
     surveys, staffing levels, and number and types of residents, 
     facility ownership and 15 quality measure scores on a website 
     entitled Nursing Home Compare. This site is available to the 
     public and is intended to assist individuals in choosing a 
     Medicare- and Medicaid-certified nursing home by state, 
     county, city, zip code, or by facility name. Additional 
     research into the development of quality measures, staffing, 
     and best practices is currently underway through CMS 
     contracts with Quality Improvement Organizations (QIOs).
     Senate Bill
       This provision would also require SNFs to submit quality 
     data for the measurement of health outcomes and other indices 
     of quality to the Secretary for FY 2009 and each subsequent 
     fiscal year. Data required would be determined by the 
     Secretary after conducting a study in consultation with 
     certain nationally recognized quality measurement entities, 
     researchers, health care provider organizations, and other 
     appropriate groups and consult with, and take into account, 
     recommendations of, the entity that the Secretary has an 
     arrangement with based on criteria specified in section 
     6110(e) of this bill. The Secretary would also be required to 
     consult with entities that have joined together to develop 
     strategies for quality measurement and reporting, including 
     the feasibility of collecting and reporting meaningful data 
     on quality measures and that involve representatives of 
     health care providers, health

[[Page H12705]]

     plans, consumers, employers, purchasers, quality experts, 
     government agencies, and other individuals and groups that 
     are interested in quality of care.
       For FY 2009 and each subsequent year, SNF market basket 
     percentage changes would be reduced by two percentage points 
     for SNFs that do not submit this data. Such reductions would 
     apply only with respect to the fiscal year involved and the 
     Secretary would be prohibited from taking into account a 
     reduction in the Federal per diem rate.
       The Secretary would be required to establish procedures for 
     making this data available to the public in a clear and 
     understandable form. Such procedures would be required to 
     ensure that a facility has the opportunity to review the data 
     that is be made public with respect to the facility prior to 
     such data being made public.
     House Bill
       No provision.
     Conference Agreement
       No provision.

                      Title VI--Medicaid and SCHIP

                          Subtitle A--Medicaid

               Chapter 1--Payment for Prescription Drugs

     Federal Upper Payment Limit for Multiple Source Drugs and 
         Other Drug Payment Provisions (Section 6001 of the 
         Conference Agreement, Section 6001 of the Senate Bill, 
         and Section 3101 of the House Bill)
       a. Modification of federal upper payment limit for multiple 
           source drugs; definition of multiple source drugs
     Current Law
       States set the amounts to pay pharmacies for outpatient 
     prescription drugs provided to Medicaid enrollees. States pay 
     those amount to pharmacies and then seek reimbursement of the 
     federal share of those payments. Federal reimbursements to 
     states for state spending for certain outpatient prescription 
     drugs are subject to ceilings called federal upper limits 
     (FULs). The FUL applies, in the aggregate, to payments for 
     multiple source drugs--those that have at least three 
     therapeutically equivalent drug versions. The Centers for 
     Medicare and Medicaid Services (CMS) calculates the FUL to be 
     equal to 150 percent of the published price for the least 
     costly therapeutic equivalent. The published prices that CMS 
     uses as a basis for calculating the FULs are the lowest of 
     the average wholesale prices (AWP) for each group of drug 
     equivalents. Brand name drugs are subject to an upper limit 
     equal to the amount that pharmacists must pay to acquire the 
     drug (the acquisition cost) as estimated by the states.
       Pharmaceutical manufacturers whose drugs are available to 
     Medicaid beneficiaries must provide state Medicaid programs 
     with rebates. Rebates are calculated based on the average 
     manufacturer's price (AMP) of each product, and for certain 
     other products, the best price at which the manufacturers 
     sell the drug. The AMP is defined as the average price paid 
     to a manufacturer by wholesalers for drugs distributed to 
     retail pharmacies. Certain federal drug purchases as well as 
     several other specific kinds of sales are exempt from the AMP 
     and from the best price calculation. Sales at prices that are 
     ``nominal'' in amount are excluded from the computation of 
     best price. CMS defines nominal prices to be those that are 
     below 10 percent of the AMP.
     Senate Bill
       The Senate bill would specify that FULs for multiple source 
     drugs provided in pharmacies that are not critical access 
     pharmacies would be calculated to be equal to 115 percent of 
     the weighted AMP for those drugs. The FULs for multiple 
     source drugs provided in critical access pharmacies would be 
     calculated to be equal to the lesser of 140 percent of the 
     AMP or the wholesale acquisition cost (WAC) for the drug. The 
     bill would establish FULs for single source drugs. For those 
     single source drugs provided in pharmacies that are not 
     critical access pharmacies, the FUL would be calculated to be 
     equal to 105 percent of the AMP. FULs for those single source 
     drugs provided in critical access retail pharmacies would be 
     calculated to be equal to the lesser of 108 percent of the 
     AMP or the WAC for the drug.
       Exceptions to the FUL would be for drugs sold during an 
     initial sales period in which data on sales for the drug are 
     not sufficiently available from the manufacturer to compute 
     the AMP or the weighted AMP, and for drugs for which 
     alternatives would not be as effective. For drugs sold during 
     an initial sales period, the Senate bill would establish a 
     transitional upper payment limit to apply only during such 
     period. For a period not to exceed 2 calendar quarters, the 
     upper limit for single source drugs would be calculated to be 
     equal to the wholesale acquisition cost (WAC) for the drug. 
     The bill would define WAC--the definition would be identical 
     to the current law Medicare definition. For first non-
     innovator multiple source drugs, the upper limit during the 
     transition period would be equal to the AMP for the single 
     source drug rated as therapeutically equivalent minus 10 
     percent. For subsequent non-innovator multiple source drugs, 
     if the Secretary has sufficient data to determine AMP, the 
     FUL during the transition period would be equal to the 
     weighted AMP for the therapeutically equivalent and 
     bioequivalent form of the drug. If the Secretary does not 
     have sufficient data, the FUL would be the AMP for the single 
     source drug that is therapeutically equivalent and 
     bioequivalent minus 10 percent.
       In the case of an innovator multiple source drug that a 
     prescribing health care provider determines is necessary for 
     treatment of a condition and that a non-innovator multiple 
     source drug would not be as effective for the individual or 
     would have adverse effects for the individual or both, and 
     for which the provider obtains prior authorization in 
     accordance with the states' program, the upper payment limit 
     for the innovator multiple source drug shall be equal to 105 
     percent of the AMP for such drug.
       The Secretary would be required to update FULs on a 
     quarterly basis, taking into account the most recent data 
     collected for the purposes of determining such limits and the 
     FDA's most recent publication of ``Approved Drug Products 
     with Therapeutic Equivalence Evaluations.''
       The Senate FUL provisions would become effective on the 
     later of January 1, 2007 or the date that is 6 months after 
     the close of the first regular session of the State 
     legislature that begins after the date of enactment.
       The Senate bill would establish interim FULs to apply 
     during calendar year 2006, before the new FULs become 
     effective. During the period January 1, 2006 through the 
     effective date of the FUL provisions, the Secretary would 
     apply the FUL as under current law and regulations except 
     that instead of limiting federal matching to 150 percent of 
     AWP, it would be limited to 125 percent of AWP. In the case 
     of covered outpatient drugs that are marketed as of July 1, 
     2005 and are subject to FULs under current law, the Secretary 
     would be required to use the AWPs, direct prices, and WACs as 
     of that date to calculate the applicable FUL. New drugs first 
     marketed between July 1, 2005 and January 1, 2007 would be 
     subject to this interim FUL calculation.
     House Bill
       The House bill would specify that the FUL for the 
     ingredient cost of a multiple source drug would be equal to 
     120 percent of the volume weighted average RAMP for that 
     drug. The bill would establish upper limits for single source 
     drugs as well. The FUL for the ingredient cost of a single 
     source drug would be equal to the 106 percent of the RAMP for 
     that drug. A drug product that is a single source drug and 
     that becomes a multiple source drug would continue to be 
     treated as a single source drug, with respect to the 
     applicable FUL, until the Secretary determines that there is 
     sufficient data to compile the volume weighted average RAMP.
       The House bill would provide the Secretary with an option 
     to develop an alternative methodology setting the FUL based 
     on the most recently reported retail survey price instead of 
     a percentage of RAMP or the volume weighted average RAMP. The 
     House bill would allow the Secretary to use this methodology, 
     in 2007, for a limited number of covered outpatient drugs, 
     including both single source and multiple source drugs 
     selected to be representative of the classes of drugs 
     dispensed under Medicaid.
       The House bill provides exceptions to the FULs for drugs 
     sold during an initial sales period and for drugs dispensed 
     by specialty pharmacies. For those drugs sold during an 
     initial sales period for which data for computation of the 
     RAMP may not be available, the House bill includes a 
     provision similar to the Senate provision, except it would 
     apply only to single source drugs sold during the initial 
     sales period and the provision does not include any 
     specification for first innovator multiple source drugs. The 
     bill includes a definition of WAC, to be used during the 
     initial sales period, that is identical to the definition 
     of WAC in the Senate bill. The House bill would also allow 
     a state to elect not to apply the new FUL to covered 
     outpatient drugs dispensed by specialty pharmacies, such 
     as those that dispense only immunosuppressive drugs, as 
     defined by the Secretary, or drugs administered by a 
     physician in a physician's office.
       The House bill would require the Secretary to update the 
     FULs at least on a quarterly basis. Otherwise, the provision 
     regarding FUL updates is identical to the Senate provision.
       The effective date for the House FUL provisions would be on 
     the later of January 1, 2007 or the date that is 6 months 
     after the close of the first regular session of the state 
     legislature that begins after the date of enactment of this 
     Act.
       The House bill would provide the Secretary with the 
     authority to delay the implementation of the new FUL limits 
     for a period of not more than 1 year, if the Comptrol1er 
     General finds that the estimated average payment amount to 
     pharmacies for covered outpatient drugs under the new FULs 
     are below the average prices paid by pharmacies for acquiring 
     such drugs. If the Secretary delays the implementation of the 
     FULs then the Secretary would be required to transmit to 
     Congress, prior to the termination of the period of delay, a 
     report containing specific recommendations for legislation to 
     establish a more equitable payment system.
       The House bill would clarify that the FULs would not affect 
     maximum allowable cost limits as established by states and 
     rebates would continue to be paid without regard to whether 
     or not states' payments are subject to such a limit In 
     addition, it would prohibit administrative and judicial 
     reviews of the Secretary's determinations of FULs, RAMPs, 
     volume weighted average RAMPs including the:
        assignment of National Drug Codes to billing and 
     payment classes;

[[Page H12706]]

        Secretary's disclosure to states of AMP, RAMP, 
     volume weighted average RAMP, and retail survey prices;
        determinations by the Secretary of covered 
     outpatient drugs dispensed by specialty pharmacies or 
     administered in physicians' offices;
        contracting and calculations under these 
     provisions; and
        methods of allocating rebates, chargebacks, or 
     other price concessions if specified by the Secretary.
       The House bill would require the Comptroller General of the 
     U.S. to provide a report to Congress no later than nine 
     months after the date of enactment on the appropriateness of 
     payment levels to pharmacies for dispensing fees under the 
     Medicaid program and on whether the estimated average payment 
     amounts to pharmacies for covered outpatient drugs under the 
     new FUL method are below the average prices paid by 
     pharmacies for acquiring such drugs. The bill would also 
     require the Inspector General of HHS to provide a report to 
     Congress, no later than two years after the date of 
     enactment, on the appropriateness of using RAMP and retail 
     survey prices rather than the AMP or other price measures, as 
     the basis for establishing a FUL for reimbursement of 
     outpatient drugs under Medicaid.
     Conference Agreement
       The conference agreement applies FULs to multiple source 
     drugs for which the FDA has rated 2 or more products to be 
     therapeutically and pharmaceutically equivalent. For those 
     drugs, the FUL would be equal to 250% of the average 
     manufacturer price computed without regard to prompt pay 
     discounts for the lowest cost drug. Effective January 1, 
     2007.
       The agreement modifies the definition of multiple source 
     drug so that a drug qualifies as a multiple source drug if 
     there is at least one other drug sold and marketed during the 
     period that is rated as therapeutically equivalent and 
     bioequivalent to it.
       b. Disclosure of price information to states and the public
     Current Law
       AMP and best price data are required to be reported by 
     manufacturers to CMS no later than 30 days after the date of 
     entering into a rebate agreement and then no later than 30 
     days after the last day of each rebate period. Those prices 
     are required to be kept confidential except for the purpose 
     of carrying out the requirements of Medicaid rebates, or to 
     permit the Comptroller General and the Director of the 
     Congressional Budget Office to review the information.
     Senate Bill
       The Senate bill would modify the confidentiality 
     requirements to allow states access to reported price 
     information and would require the Secretary to make available 
     to states, beginning with the first quarter of FY2006, the 
     most recently reported AMP and weighted AMPs. The Secretary 
     would be required to devise and implement a means of 
     electronic distribution for these prices to state Medicaid 
     agencies.
     House Bill
       The House bill would modify the confidentiality 
     requirements to allow states access to reported price 
     information. In addition, the bill would require the 
     Secretary to devise and implement a means for electronic 
     distribution to state Medicaid agencies, of retail survey 
     prices.
     Conference Agreement
       The conference agreement would increase the required 
     reporting of AMP and best prices. AMP would be reported and 
     calculated on a monthly basis. In addition, the agreement 
     allows states to have access to reported AMP data for 
     multiple source drugs for the purpose of carrying out the 
     Medicaid programs and would require the Secretary to disclose 
     such information through a website accessible to the public. 
     In addition, the provision requires the Secretary to provide 
     AMPs to States on a monthly basis and to update information 
     posted to the website on at least a quarterly basis.
       c. Definition of average manufacturer price
     Current Law
       The AMP is defined as the average price paid to a 
     manufacturer by wholesalers for drugs distributed to retail 
     pharmacies. CMS instructs manufacturers to exclude certain 
     federal drug purchases as well as free goods from the 
     computation of AMP. Sales at nominal prices are excluded from 
     the best price computation. Manufacturers are required to 
     report, for each rebate period, the AMP for all Medicaid 
     covered outpatient drug products and the best price for 
     single source and innovator multiple source drugs to CMS.
     Senate Bill
       The Senate bill would modify the definition of AMP and 
     require the modified AMP to be used to calculate the FUL for 
     single source drugs in addition to rebates, as under current 
     law. The provision would specify that sales exempted from 
     inclusion in the determination of best price, nominal price 
     sales (except for those contingent on purchase requirements 
     or agreements), and bona fide service fees would be exempted 
     from the computation of the AMP. Computation of AMP would 
     include cash and volume discounts; nominal price sales 
     contingent on a purchase agreement or requirement; free 
     goods; chargebacks or rebates to a pharmacy (excluding 
     mail order, nursing home pharmacies and pharmacy benefit 
     managers), or any other direct or indirect discounts; and 
     any other price concessions which may be based on 
     recommendations of the Inspector General of HHS. Bona fide 
     user fees would be defined as expenses for a service 
     actually performed by an entity for a manufacturer that 
     would have generally been paid for by the manufacturer at 
     the same rate had these services been performed by another 
     entity.
       The Senate bill would define the weighted AMP, to be used 
     in calculating the FUL for multiple source drugs, with 
     respect to the rebate period, as the volume-weighted average 
     of manufacturers' reported prices for all drug products that 
     are therapeutically equivalent and bioequivalent. It would be 
     computed by summing, for all therapeutic equivalents and 
     bioequivalent forms of the drug, the products of the AMP and 
     the number of units sold. The sum of those amounts would be 
     divided by the sum of all units sold for all NDCs assigned to 
     such products. In cases in which there is a lag in the 
     reporting of information on rebates and chargebacks so that 
     adequate data are not available on a timely basis to update 
     the weighted AMP for a multiple source drug, the manufacturer 
     of such drug would apply a methodology based on a 12-month 
     rolling average to estimate costs attributable to rebates and 
     chargebacks for such drugs. For years after 2006, the 
     Secretary would be required to establish a uniform 
     methodology to estimate and apply such costs.
       The Senate bill would modify the existing price reporting 
     requirements so that manufacturers would be required to 
     report the modified AMP and the weighted AMP to the Secretary 
     of CMS as well as information and data on any sales made 
     during the reporting period at a nominal price. The bill 
     would provide the Secretary with the authority to enter into 
     contracts with appropriate entities to determine AMP, prices, 
     volume, and other data necessary to calculate the FUL and 
     payment limits for covered drugs.
       The Senate modifications to the definition of AMP would 
     become effective as if enacted on July 1, 2005 except for the 
     provisions related to the exclusion of nominal prices from 
     AMP. Those provisions would become effective on the later of 
     the expiration date of a contract in effect on the date of 
     enactment or October 1, 2006 and would apply to sales made 
     and rebate periods beginning on or after that date.
     House Bill
       The House bill would not change AMP. Instead it would 
     establish a measure of price referred to as RAMP for the 
     purpose of calculating the FUL for single source drugs. RAMP 
     would be defined as the average price paid to a manufacturer 
     for the drug in the U.S. in the quarter by wholesalers for 
     drugs distributed to retail pharmacies, excluding service 
     fees. For this purpose, retail pharmacies would be defined to 
     exclude mail-order only pharmacies and pharmacies at nursing 
     facilities and homes. Specified items to be excluded from 
     RAMP are similar to those to be excluded from AMP in the 
     Senate bill except that the House bill allows the Secretary 
     to define nominal sales, and free goods contingent on 
     purchase requirements would not be excluded from RAMP. In 
     addition, service fees that represent fair market value for a 
     bonafide service provided by the entity would be excluded 
     from RAMP. Items to be included in RAMP are also similar to 
     those included in AMP in the Senate bill except that RAMP 
     includes free goods contingent upon a purchase requirement; 
     and does not provide for an exception for mail order, nursing 
     home pharmacies and pharmacy benefit managers.
       The volume weighted average RAMP would be defined, for all 
     drug products in the same multiple source drug billing and 
     payment code (or other methodology as specified by the 
     Secretary), as the volume weighted average of the reported 
     RAMPs. It would be computed by summing the products of the 
     RAMPs for all product with an NDC code and multiplying by the 
     total number of units of the drug product sold. Those amounts 
     would be summed together and divided by the total number of 
     units sold for all NDC codes assigned to such products.
       The House bill would establish reporting requirements of 
     drug manufacturers. Manufacturers would be required, 
     beginning after July 1, 2006, to submit the RAMP, the total 
     number of units required to compute the volume weighted 
     average RAMP, the WAC for drugs sold during an initial sales 
     period, and information on nominal price sales. The reporting 
     would be by National Drug Code (NDC). In addition, the bill 
     would provide the Secretary with the authority to enter into 
     contracts with appropriate entities to determine RAMPs and 
     other data necessary to calculate the FULs and payment limits 
     and would modify the confidentiality provisions allowing 
     states access to reported price information.
     Conference Agreement
       The conference agreement amends the definition of AMP to 
     exclude customary prompt pay discounts extended to 
     wholesalers from those amounts. In addition, the agreement 
     modifies the price reporting requirements so that 
     manufacturers would be required to submit, not later than 30 
     days after the last day of each rebate period, the customary 
     prompt pay discounts extended to wholesalers in addition to 
     the AMP and best price reporting required under current law.
       The conference agreement requires the Inspector General of 
     the Department of Health and Human Services (HHS) to, no 
     later than

[[Page H12707]]

     June 1, 2006, review the requirements for, and the manner in 
     which AMP is determined and to submit to the Secretary and 
     Congress any recommendations for changes as determined to be 
     appropriate.
       The agreement also requires the Secretary of HHS to 
     promulgate a regulation clarifying the requirements for and 
     the manner in which AMPs are to be determined, taking into 
     consideration the recommendations of the Inspector General.
       d. Exclusion of sales at a nominal price from determination 
           of best price
     Current Law
       In addition to the AMP, pharmaceutical manufacturers are 
     required to report to the Secretary of HHS the ``best price'' 
     at which the manufacturer sells each of its drug products to 
     certain purchasers for the purpose of calculating the rebate 
     amounts. Prices that are nominal in amount are excluded from 
     best price reporting. Nominal prices are defined by CMS to be 
     those that are below 10% of the average manufacturer's price.
     Senate Bill
       The Senate bill would exclude, for the purposes of 
     computing the AMP, sales by a manufacturer of covered 
     outpatient drugs that are single source, innovator multiple 
     source drugs, or are authorized generics that are made 
     available at nominal prices to the following listed entities: 
     (a) entities eligible for discounted prescription drug prices 
     under Section 340(B) of the Public Health Service Act; (b) 
     intermediate care facilities for the mentally retarded, (c) 
     stateowned or operated nursing facilities, (d) any other 
     facility or entity that the ``Secretary determines is a 
     safety net provider to which sales of such drugs at nominal 
     prices would be appropriate based on the type of facility, 
     the services it provides, the patients served and the number 
     of other such facilities eligible for nominal pricing in the 
     area. The nominal price limitations would not apply to 
     nominal drug purchases pursuant to a master agreement for 
     procurement of drugs on the Federal Supply Schedule. In 
     addition, the bill would modify manufacturers' price 
     reporting requirements to include, for calendar quarters 
     beginning on or after January 1, 2006 information on sales 
     made at a nominal price.
     House Bill
       The House bill would exclude, for the purpose of computing 
     the RAMP, sales as the Secretary identifies, that are nominal 
     in amount. In addition, the bill would modify manufacturers' 
     price reporting requirements to include, for calendar 
     quarters beginning on or after July 1, 2006 information on 
     sales made at a nominal price.
     Conference Agreement
       The conference agreement modifies the manufacturer price 
     reporting requirements so that for calendar quarters 
     beginning on or after January 1, 2007, manufacturers would be 
     required to report information on sales of Medicaid covered 
     drugs that are made at a nominal price.
       In addition, the agreement defines the sales are to be 
     considered nominal for the purpose of reporting nominal price 
     sales and for computing and reporting the best price. (The 
     agreement does not amend the AMP vis-a-vis nominal prices.) 
     Nominal sales are those made by a manufacturer of covered 
     drugs at nominal prices to (a) entities eligible for 
     discounted prescription drug prices under Section 340(B) of 
     the Public Health Service Act; (b) intermediate care 
     facilities for the mentally retarded, (c) state-owned or 
     operated nursing facilities, (d) any other facility or entity 
     that the Secretary determines is a safety net provider to 
     which sales of such drugs at nominal prices would be 
     appropriate based on the type of facility, the services it 
     provides, the patients served and the number of other such 
     facilities eligible for nominal pricing in the area. The 
     nominal price limitations do not apply to nominal drug 
     purchases pursuant to a master agreement for procurement of 
     drugs on the Federal Supply Schedule.
       e. Retail survey prices; state payment and utilization 
           rates; and performance rankings.
     Current Law
       No provision.
     Senate Bill
       No provision.
     House Bill
       The House bill would allow the Secretary to contract with a 
     vendor to obtain retail survey prices for Medicaid covered 
     outpatient drugs that represent a nationwide average of 
     pharmacy sales costs for such drugs, net of all discounts and 
     rebates. Such a contract would be awarded for a term of 2 
     years.
       The Secretary would be required to competitively bid for an 
     outside vendor with a demonstrated history in surveying and 
     determining on a representative nationwide basis, retail 
     prices for ingredient costs of prescription drugs; working 
     with retail pharmacies, commercial payers, and states in 
     obtaining and disseminating price information; and 
     ``Collecting and reporting price information on at least a 
     monthly basis. The contract would include the terms and 
     conditions specified by the Secretary and would include a 
     requirement that the vendor monitor the marketplace and 
     report to the Secretary each time there is a new covered 
     outpatient drug available nationwide; update the Secretary no 
     less often than monthly on the retail survey prices for 
     multiple source drugs and on the computed upper payment limit 
     for those drugs; to independently confirm retail survey 
     prices. Information on the retail survey prices obtained 
     through this process, including information on single source 
     drugs would be required to be provided to states on an 
     ongoing and timely basis.
     Conference Agreement
       The conference agreement includes a provision similar to 
     the House provision. The agreement allows the Secretary to 
     contract for services for the determination of retail survey 
     prices for covered outpatient drugs that represent a 
     nationwide average of consumer purchase prices for such 
     drugs. The conference agreement adds a provision allowing 
     such a contract to include notification of the Secretary when 
     a drug product that is therapeutically and pharmaceutically 
     equivalent and bioequivalent becomes generally available. The 
     vendor must update the Secretary no less often than monthly 
     on the retail survey prices for covered outpatient drugs. The 
     contract shall be effective for a term of two years. If the 
     Secretary were to be notified that such a product has become 
     generally available, the Secretary would be required to make 
     a determination within 7 days as to whether the drug meets 
     the definition of a multiple source drug subject to the 
     application of the FUL. The agreement allows the Secretary to 
     waive those provisions the Secretary determines are 
     appropriate to waive, of the Federal Acquisition Regulation, 
     for the efficient implementation of the contract.
       The agreement does not require the contractor to 
     independently confirm retail survey prices, as in the House 
     bill, and does not require the Secretary to provide for 
     electronic distribution to states. On the other hand, the 
     Secretary would be required to devise and implement a means 
     for providing access to each state Medicaid agency of 
     collected price information and to provide information on 
     retail survey prices, including information on single source 
     drugs, to states at least monthly.
       The agreement requires an annual report from each state 
     agency. States are required to provide to the Secretary, the 
     payment rates for all covered drugs, dispensing fees and 
     utilization of innovator multiple source drugs under the 
     state Medicaid plan. The Secretary is required to compare, on 
     an annual basis, for the 50 most widely prescribed drugs, the 
     national retail sales price data for each state. In addition, 
     the Secretary is required to submit full information 
     regarding the annual rankings to Congress. The provision 
     becomes effective on January 1, 2007.
       (f) Miscellaneous amendments
     Current Law
       States are required to have in place a program of 
     prospective drug review wherein before each prescription is 
     filled, the use of the prescription is screened for potential 
     drug therapy problems. The requirement includes language 
     clarifying that nothing in the provision is intended to 
     require a pharmacist to provide this consultation when a 
     beneficiary refuses such a consultation.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement clarifies that the requirement to 
     provide prospective drug reviews is not intended to require 
     verifications that consultations were offered or refused.
       Effective on the date of enactment.
       (g) Effective date
     Current Law
       No provision.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       Unless otherwise specified, the provisions in Section 6001 
     take effect on January 1, 2007, without regard to whether or 
     not final regulations to carry out such amendments have been 
     promulgated by such date.
     Collection and Submission of Utilization Data for Certain 
         Physician Administered Drugs (Section 6002 of the 
         Conference Agreement, Section 6004 of the Senate Bill, 
         and Section 3102 of the House Bill)
     Current Law
       Manufacturers are required to provide rebates to states for 
     all outpatient prescription drugs with some exceptions. 
     Outpatient prescription drugs provided through managed care 
     organizations are explicitly exempted from the rebate 
     requirement. In addition, outpatient drugs dispensed by a 
     hospital and billed at no more than the hospital's purchasing 
     costs are exempt from the rebate requirement. Certain drugs 
     administered by physicians in their offices or in another 
     outpatient setting, such as chemotherapy, have often been 
     excluded from the drug rebate program although there is no 
     specific statutory exclusion. This is because providers use 
     Healthcare Common Procedure Coding System (HCPCS) J-codes to 
     bill the Medicaid program for injectible prescription drugs, 
     including cancer drugs. The HCPCS J-codes do not, however, 
     provide States with the specific manufacturer information 
     necessary to enable them to seek rebates. The NDC number is 
     necessary for the state to bill manufacturers for rebates. 
     CMS has requested that states identify Medicaid drugs,

[[Page H12708]]

     specifically those using HCPCS J-codes, by their NDC codes so 
     that rebates can be collected for these drugs (Letter to 
     State Medicaid Director, SMDL #03-002, dated March 14, 2003). 
     CMS has concluded that because of this coding, many state 
     Medicaid programs have not collected rebates on these drugs, 
     resulting in millions of dollars in uncollected rebates.
     Senate Bill
       As a condition of receiving Medicaid payment, states would 
     be required to submit, to the Secretary of HHS, utilization 
     data and coding information for physician administered 
     outpatient drugs. The Secretary would determine the drugs for 
     which such reporting information would be required. The 
     reporting would include J-codes and National Drug Code 
     numbers. The purpose of the reporting would be to allow the 
     Secretary to secure rebates for such drugs.
       Effective upon enactment.
     House Bill
       As a condition of receiving Medicaid payment, and in order 
     to secure rebates for physician administered drugs states 
     would be required to submit:
       --No later than January 1, 2006, utilization data and 
     coding information for single source drugs or biologicals 
     that are physician administered outpatient drugs. The 
     Secretary would determine the drugs for which such reporting 
     information would be required.
       --No later than January 1, 2007, utilization data and 
     coding information by NDC (unless the Secretary identifies an 
     alternative coding system) for multiple source drugs.
       --No later than January 1, 2008, utilization and coding 
     information for those drugs on the list of 20 high volume 
     physician administered drugs.
       --No later than January 1, 2007, the Secretary would be 
     required to publish a list of the 20 physician administered 
     multiple source drugs that have the highest volume of 
     physician administered dispensing under Medicaid. The 
     Secretary would be able to modify such list from year.
       The Secretary would be permitted to delay the application 
     of the reporting requirements in the case of a State to 
     prevent hardship to States that require additional time to 
     implement such a reporting system.
     Conference Agreement
       The agreement includes a provision similar to the House 
     provision. For drugs administered on or after January 1, 
     2006, states are required to provide for the collection and 
     submission of utilization and coding information for each 
     Medicaid single source drug that is physician administered. 
     For drugs administered on or after January 1, 2008, states 
     are required to provide for the collection and submission of 
     utilization and coding information for each Medicaid multiple 
     source drug that is physician administered. Submissions from 
     states will be based on National Drug Codes unless the 
     Secretary specified an alternative coding system. All other 
     provisions are identical to the House bill.
     Improved Regulation of Drugs Sold Under a New Drug 
         Application Approved Under Section 505(c) of the Federal 
         Food, Drug, and Cosmetic Act (Section 6003 of the 
         Conference Agreement, Section 6003 of the Senate Bill, 
         and Section 3103 of the House Bill)
     Current Law
       Prescription drug manufacturers participating in the 
     Medicaid program are required to report, to the Secretary of 
     HHS, the AMP for each pharmaceutical product offered under 
     Medicaid and, for each brand name drug product, the best 
     price available to any wholesaler, retailer, provider, health 
     maintenance organization (HMO), nonprofit entity, or 
     governmental entity. The term `best price' is defined in the 
     Medicaid statute but only with respect to single source and 
     innovator multiple source drugs since the best price is part 
     of the rebate computation for only those drugs. These 
     reported prices are used to calculate rebates--which are 
     generally calculated separately for brand name drug products 
     and for generics.
       Sometimes manufacturers produce both a brand name version 
     of a prescription drug and also sell or license a second 
     manufacturer (or a subsidiary) to produce some of the same 
     product to be sold or re-labeled as a generic. These 
     generics, called ``authorized generics,'' are subject to a 
     separate rebate calculation. Rebates for brand name products, 
     take into account the best price reported for each drug. Such 
     price often does not include the price of the product sold as 
     the authorized generic.
       Current law defines best price with respect only to a 
     single source drug or innovator multiple source drug, as the 
     lowest price available from the manufacturer during the 
     rebate period to any wholesaler, retailer, provider, HMO, 
     nonprofit entity, or governmental entity within the U.S. 
     excluding prices charged to specified governmental 
     purchasers. The AMP is defined as the average price paid to a 
     manufacturer by wholesalers for drugs distributed to retail 
     pharmacies. Certain federal drug purchases as well as several 
     other specific kinds of sales are exempt from the AMP and 
     from the best price calculation.
     Senate Bill
       The Senate bill would modify the existing drug price 
     reporting requirements to include, for single source drugs, 
     innovator multiple source drugs, authorized generic drugs, 
     and any other drugs sold under a new drug application 
     approved (under Section 505c of the Federal Food, Drug and 
     Cosmetic Act, FFDCA) by FDA, both the average manufacturer's 
     price and the manufacturer's best price for such drugs. An 
     authorized generic drug would be defined as a listed drug 
     that has been approved by the FDA under Section 505( c) of 
     such Act and is marketed, sold or distributed directly or 
     indirectly to retail class of trade under a different 
     labeling, packaging (other than repackaging the listed drug 
     for use in institutions), product code, labeler code, trade 
     name, or trade mark than the listed drug.
       The definition of best price would be modified so that, in 
     the case of a manufacturer that approves, allows or otherwise 
     permits an authorized generic or any other drug to be sold 
     under an NDA, it is inclusive of the lowest price such drug 
     is sold to any wholesaler, retailer, provider, HMO, nonprofit 
     or governmental entity. The definition of AMP would be 
     modified to include, in the case of a manufacturer that 
     approves, allows, or otherwise permits an authorized generic 
     or any other drug of the manufacturer to be sold under an NDA 
     to be inclusive of the average price paid for such drugs. The 
     provision would become effective on January 1, 2006.
     House Bill
       The provision would modify the existing drug price 
     reporting requirements for pharmaceutical manufacturers. No 
     later than 30 days after the last day of each rebate period, 
     manufacturers would be required to report,
        for each covered outpatient drug, including those 
     sold under a new drug application approved by the FDA, the 
     average manufacturer's price for such drugs; and,
        for single source drugs, innovator multiple source 
     drugs, and any other drug sold under a new drug application 
     approved by the FDA, the manufacturers best price for such 
     drugs during the applicable rebate period.
       Not later than 30 days after the date of entering into a 
     drug rebate agreement, manufacturers would be required to 
     report on the average manufacturer price for each of the 
     manufacturer's covered outpatient drugs, including those sold 
     under a new drug application approved by the FDA.
       The definition of best price would be changed to apply, not 
     only to each single source drug and innovator multiple source 
     drug, but also to drugs sold under a new drug application 
     (NDA) approved by (under Section 505c of FFDCA) FDA. In 
     addition, the definition would be modified so that the best 
     price, in the case of a manufacturer that approves, allows or 
     otherwise permits an authorized. generic or any other drug of 
     the manufacturer to be sold under an NDA, is inclusive of the 
     lowest price such authorized generic or other drug is sold to 
     any wholesaler, retailer, provider, HMO, nonprofit or 
     governmental entity except for those entities excluded under 
     current law. The provision would modify the current law 
     definition of AMP to include, in the case of a manufacturer 
     that approves, allows, or otherwise permits a drug of the 
     manufacturer to be sold under an NDA to be inclusive of the 
     average manufacturer price paid for such drugs. The provision 
     would become effective on January 1, 2006.
     Conference Agreement
       The agreement includes a provision similar to the Senate 
     provision. The provision is different from the Senate 
     provision in that it does not refer to the affected drugs as 
     ``authorized generics''. Instead, the agreement uses the 
     phrase ``any drug of the manufacturer sold under a new drug 
     application approved under section ``505(c) of the Federal 
     Food, Drug, and Cosmetic Act'' to include authorized 
     generics. The conference agreement does not include a 
     definition of ``authorized generics.'' In addition, the 
     definition of best price would be modified so that it is 
     inclusive, in the case of a manufacturer that approves, 
     allows, or otherwise permits any other drug of the 
     manufacturer to be sold under a new drug application approved 
     under section 505(c) of the FFDCA, of the lowest price for an 
     authorized drug available from the manufacturer during the 
     rebate period to any manufacturer, wholesaler, retailer, 
     provider, health maintenance organization, nonprofit entity, 
     or governmental entity within the U.S. The effective date 
     would be January 1, 2007.
     Children's Hospital Participation in Drug Discount Program 
         (Section 6004 of the Conference Agreement, no provision 
         of the Senate Bill, and Section 3104 of the House Bill)
     Current Law
       Section 340(B) of the Public Health Service Act allows 
     certain health care providers, including community health 
     centers and disproportionate share hospitals, access to 
     prescription drug prices that are similar to the prices paid 
     by Medicaid agencies after being reduced by manufacturer 
     rebates.
     Senate Bill
       No provision.
     House Bill
       The House bill would include a provision adding Children's 
     Hospitals to the list of providers that may have access to 
     340(B) discounted prices. The provision would become 
     effective for drugs purchased on or after the date of 
     enactment.
     Conference Agreement
       The conference agreement includes the House provision.

[[Page H12709]]

     Dispensing Fees (No provision in the Conference Agreement, 
         Section 6001 of the Senate Bill, and Section 3101 of the 
         House Bill)
     Current Law
       States are allowed to pay pharmacies reasonable dispensing 
     fees.
     Senate Bill
       The Senate bill would require states to establish 
     dispensing fees that are (a) greater for noninnovator 
     multiple source drugs than those for innovator multiple 
     source drugs that are therapeutically equivalent and 
     bioequivalent; and (b) that take into account requirements 
     established by the Secretary to include reasonable costs 
     associated with a pharmacist's time checking an individual's 
     coverage or performing quality assurance; measuring or mixing 
     of a drug; filing the container; providing the completed 
     prescription; delivery; special packaging; physical 
     overhead and salaries of pharmacists and other pharmacy 
     workers; geographic factors that impact costs; patient 
     counseling; and drugs requiring specialty pharmacy 
     management services.
       The Senate bill would require, no later than 15 months 
     after the date of enactment, with quarterly updates 
     thereafter, the Secretary to establish of list of covered 
     outpatient drugs requiring specialty pharmacy care management 
     services. The list would include only those drugs for which 
     the Secretary determines that access to the drug would be 
     seriously impaired without the provision of such care 
     management services. Specialty pharmacy care management 
     services would be defined as those services provided in 
     connection with the dispensing of a covered drug that 
     requires:
        significant caregiver contact, education about the 
     disease state, prevention, treatment, drug indications, 
     benefits, risks, complications, pharmacy counseling and 
     explanation;
        patient compliance services including coordination 
     of provider visits with drug delivery, compliance with dosing 
     regimen, mailing or telephone call reminders, compiling 
     compliance data, assistance providers with compliance 
     programs;
        tracking services, referral processes, screening 
     referrals, and tracking patient weight for dosage.
       In addition, the Senate bill would require states to 
     consider, in establishing dispensing fees, the costs 
     associated with operating a critical access retail pharmacy.
     House Bill
       The House bill would require states to pay a dispensing fee 
     for each covered outpatient drug. States would be allowed to 
     vary dispensing fees to take into account the special 
     circumstances of pharmacies serving rural and underserved 
     areas and sole community pharmacies. Dispensing fees for 
     drugs defined as multiple source drugs under the FUL policy 
     would be required to be no less than $8 per prescription 
     unit. The Secretary would be required to define what 
     constitutes a prescription unit for this purpose.
     Conference Agreement
       No provision.
     Increase in rebates for covered outpatient drugs (No 
         provisions of the Conference Agreement, Sections 6001, 
         6002 and 6039D of the Senate Bill, and no provisions of 
         the House Bill)
     Current Law
       Basic Medicaid rebates for single source and innovator 
     multiple source drugs are equal to the greater of 15.1 
     percent of the AMP or the difference between the reported AMP 
     and best price for each drug. In addition, if the prices of 
     single source or innovator multiple source drugs rise faster 
     than inflation, additional rebates are due. Rebates for all 
     other multiple source drugs is equal to 11 percent of the 
     AMP.
     Senate Bill
       The Senate bill would modify the formulas for prescription 
     drug rebates under the Medicaid program. Beginning on January 
     1, 2006, rebates for single source and innovator multiple 
     source drugs would be equal to the greater of 18.1 percent of 
     the AMP or the difference between the reported AMP and the 
     best price for each drug. (Sections 6002(a)(3) and 
     6001(b)(2).)
       Rebates for single source and innovator multiple source 
     drugs equal to 17.8% of the AMP or the difference between the 
     reported AMP and the best price for each drug. (Section 
     6039D.)
       Rebates for all other drugs would be equal to 17%. Changes 
     to the rebate formula would begin on January 1, 2006.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     Extension of rebates to Medicaid MCOs (No provisions of the 
         Conference Agreement, Sections 6001 and 6038 of the 
         Senate Bill, and no provisions of the House Bill)
     Current Law
       Rebates are not required for drugs dispensed by Medicaid 
     managed care organizations (MCO) when the drugs are paid as 
     part of the MCO capitation rate, to drugs provided in 
     hospitals, and sometimes in physicians', or dentists' 
     offices.
     Senate Bill
       Section 6oo1(a)(5) of the Senate bill would establish 
     rebates for drugs dispensed by Medicaid MCOs. States would 
     have the option of collecting rebates directly from 
     manufacturers or allowing the MCO to collect the rebates in 
     exchange for a reduction in the prepaid payment made to the 
     entity for Medicaid enrollees. The provision would become 
     effective on the date of enactment and would apply to 
     Medicaid rebate agreements entered into or renewed on or 
     after that date.
       Section 6038 would establish rebates for drugs dispensed by 
     Medicaid MCOs except for those drugs purchased at discounted 
     prices under the Public Health Service Act Sec. 340B drug 
     discount program.
     House Bill
       No provision.
     Conference Agreement
       No provision.
     Improving Patient Outcomes (No provision of the Conference 
         Agreement, no provision of the Senate Bill, and Section 
         3105 of the House Bill)
     Current Law
       States may establish a prior authorization program as long 
     as the system provides a response for a request for approval 
     within 24 hours, and as long as the program allows for a 
     dispensing of at least a 72 hour supply of a covered drug in 
     an emergency situation. Other restrictions may be imposed if 
     they are necessary to discourage waste, fraud or abuse.
     Senate Bill
       No provision.
     House Bill
       The provision would limit the ability of states to place 
     atypical antipsychotic or antidepressant single source drugs 
     on prior authorization lists imposing other restrictions 
     unless a drug use review board has determined that doing so 
     is not likely to harm patients or increase overall medical 
     costs. It also would require states to pay for a 30 day 
     supply of such drugs in cases where a request for 
     authorization is not responded to within 24 hours after the 
     prescription is transmitted. The provision would be effective 
     on January 1, 2007.
     Conference Agreement
       No provision.

                Chapter 2--Long-Term Care Under Medicaid


  Subchapter A--Reform of Asset Transfer Rules Lengthening Look-Back 
      Period; Change in Beginning Date for Period of Ineligibility

     Lengthening Look-back Period for all Disposals to 5 years 
         (Section 6011(a) of the Conference Agreement, no 
         provision in the Senate Bill, and Section 3111(a) of the 
         House Bill)
     Current Law
       Current law requires states to impose penalties on 
     individuals who transfer assets (all income and resources of 
     the individual and of the individual's spouse) for less than 
     fair market value (an estimate of the value of an asset if 
     sold at the prevailing price at the time it was actually 
     transferred). Specifically, the rules require states to delay 
     Medicaid eligibility for certain Medicaid long-term care 
     services for individuals applying for care in a nursing home, 
     and, at state option, for certain people receiving care in 
     community-based settings, who have transferred assets for 
     less than fair market value on or after a ``look-back date.'' 
     The ``look-back date'' is 36 months prior to application for 
     Medicaid for income and most assets disposed of by the 
     individual, and 60 months in the case of certain trusts.
       Ineligibility for Medicaid coverage is limited to only 
     certain long-term care services, not all services covered 
     under the program. The services for which the penalty applies 
     include nursing facility care; services provided in any 
     institution in which the level of care is equivalent to those 
     provided by a nursing facility; Section 1915(c) home and 
     community-based waiver services; home health services; and 
     personal care furnished in a home or other locations. States 
     may choose to apply this ineligibility period to other state 
     plan long-term care services. (They also currently apply to 
     home and community care for functionally disabled elderly 
     individuals under section 1929 of the Act. This is an 
     optional coverage group which operates only in Texas.) In 
     general, states do not extend the penalty to Medicaid's acute 
     care services.
     Senate Bill
       No provision.
     House Bill
       The House bill would amend section 1917(c)(1)(B)(i) of the 
     Social Security Act to lengthen the look-back date to 5 
     years, or 60 months, for all income and assets disposed of by 
     the individual after this Act's date of enactment. For income 
     and assets disposed of prior to the enactment date, the look 
     back periods of 36 months for income and assets and 60 months 
     for certain trusts would apply. The House bill would become 
     effective on the date of the enactment of this Act.
     Conference Agreement
       The conference agreement includes the House provision.
     Change in Beginning Date for Period of Ineligibility (Section 
         6011(b) of the Conference Agreement, no provision in the 
         Senate Bill, and Section 3111(b) of the House Bill)
     Current Law
       The period of ineligibility, or penalty period, begins on 
     the first day of the first month during or after which assets 
     have been improperly transferred and which does

[[Page H12710]]

     not occur in any other period of ineligibility. There is no 
     limit to the length of the penalty period. Some penalties 
     imposed on applicants who made improper transfers within the 
     look-back period and prior to the date of Medicaid 
     application may expire before the date of Medicaid 
     application. For example, an improper transfer of $100,000 
     made 2 years prior to Medicaid application could result in a 
     20-month penalty period ($100,000 divided by the private rate 
     for a nursing home state in a state of $5,000). Since the 
     individual applies to Medicaid two years, or 24 months, after 
     having made the transfer, the penalty has already expired 
     before the individual applies to Medicaid. However, if the 
     transfer of $100,000 is made one year prior to Medicaid 
     application, the penalty of 20 months would not have expired 
     before the applicant needed Medicaid coverage, but rather 
     would continue for eight months after Medicaid application.
     Senate Bill
       No provision.
     House Bill
       The House bill would amend section 1917(c)(1)(D) of the 
     Social Security Act by changing the start date of the 
     ineligibility period for all transfers made on or after the 
     date of the enactment, to the first day of a month during or 
     before which assets have been transferred for less than fair 
     market value, or the date on which the individual is eligible 
     for Medicaid and is receiving certain long-term care 
     services, whichever is later and which does not occur during 
     any period of ineligibility as a result of an asset transfer 
     policy. For transfers made prior to this Act's enactment, 
     current law applies.
     Conference Agreement
       The conference agreement includes the House provision but 
     specifies that the start date begins on the first day of a 
     month during or after which assets have been transferred for 
     less than fair market value, or the date on which the 
     individual is eligible for Medicaid and would otherwise be 
     receiving institutional level care based on an approved 
     application for such care but for the application of the 
     penalty period, whichever is later, and which does not occur 
     during any period of ineligibility as a result of an asset 
     transfer policy.
     Effective Date (Sections 6011(c) of the Conference Agreement, 
         no provision in the Senate Bill, and Section 3111(c) of 
         the House Bill)
     Current Law
       Currently effective.
     Senate Bill
       No provision.
     House Bill
       The amendments made by this section would apply to 
     transfers made on or after the date of enactment.
     Conference Agreement
       The conference agreement includes the House provision.
     Availability of Hardship Waivers (Sections 6011(d) and (e) of 
         the Conference Agreement, Section 6011(f) of the Senate 
         Bill, and Sections 3111(d) and (e) of the House Bill)
     Current Law
       To protect beneficiaries from unintended consequences of 
     the asset transfer penalties, current law requires states to 
     establish procedures for not imposing penalties on persons 
     who, according to criteria established by the Secretary, can 
     show that a penalty would impose an undue hardship. CMS 
     guidance specifies that undue hardship can occur when 
     application of the penalty would deprive the individual of 
     medical care so that his or her health or life would be 
     endangered, or when it would deprive the individual of food, 
     clothing, shelter, or other necessities of life. The guidance 
     explains that undue hardship does not exist when application 
     of the penalty would merely cause the individual 
     inconvenience or when it might restrict his or her lifestyle 
     but would not put him or her at risk of serious deprivation.
       CMS guidance requires that state procedures, at a minimum, 
     provide for and discuss: (I) a notice to recipients that an 
     undue hardship exception exists; (2) a timely process for 
     determining whether an undue hardship waiver win be granted; 
     and (3) a process under which an adverse determination can be 
     appealed.
     Senate Bill
       The Senate bill would amend Section 1917(c) of the Social 
     Security Act by adding a requirement that states establish 
     undue hardship procedures (in accordance with standards 
     specified by the Secretary) that would provide for: (1) a 
     notice that an undue hardship exception exists before the 
     imposition of a penalty period to an applicant for Medicaid 
     who would be subject to such a penalty; (2) a timely process 
     before the imposition of a penalty determining whether an 
     undue hardship waiver win be granted for the individual; (3) 
     a process under which an adverse determination can be 
     appealed; and (4) an application of criteria that specifies 
     that undue hardship exists when application of the 
     ineligibility period or counting of trusts would deprive the 
     individual of medical care so that the individual's health or 
     life would be endangered or when it would deprive the 
     individual of food, clothing, shelter, or other necessities 
     of life.
     House Bill
       The House bill would amend section 1917(c)(2)(D) of the 
     Social Security Act to specify the criteria by which an 
     application for an undue hardship waiver would be approved. 
     Approval would be subject to a finding that the application 
     of an ineligibility period would deprive the individual of 
     medical care such that the individual's health or life would 
     be endangered, or that the individual would be deprived of 
     food, clothing, shelter, or other necessities of life. States 
     would also be required to provide for: (A) notice to 
     recipients that an undue hardship exception exists; (B) a 
     timely process for determining whether an undue hardship 
     waiver will be granted; and (C) a process under which an 
     adverse determination can be appealed.
       This provision would also amend section 1917(c)(2) of the 
     Social Security Act to permit facilities in which 
     institutionalized individuals reside to file undue hardship 
     waiver applications on behalf of the individual, with the 
     institutionalized individual's consent or the consent of his 
     or her guardian. If the application for undue hardship of 
     nursing facility residents meets criteria specified by the 
     Secretary, the state would have the option of providing 
     payments for nursing facility services to hold the bed for 
     these individuals at a facility while an application is 
     pending. Such payments could not be made for longer than 30 
     days.
     Conference Agreement
       The conference agreement includes the House provision.
     Disclosure and Treatment of Annuities and of Large 
         Transactions (Section 6012 of the Conference Agreement, 
         Section 6011(d) of the Senate Bill, and Section 3112 of 
         the House Bill)
     Current Law
       Current law provides that the term ``trust,'' for purposes 
     of asset transfers and the look-back period, includes 
     annuities only to the extent that the Secretary of DHHS 
     defines them as such. CMS guidance (Transmittal Letter 64) 
     asks states to determine the ultimate purpose of an annuity 
     in order to distinguish those that are validly purchased as 
     part of a retirement plan from those that abusively shelter 
     assets. To be deemed valid in this respect, the life of the 
     annuity must coincide with the average number of years of 
     life expectancy for the individual (according to tables in 
     the transmittal). If the individual is not reasonably 
     expected to live longer than the guarantee period of the 
     annuity, the individual will not receive fair market value 
     for the annuity based on the projected return; in this case, 
     the annuity is not ``actuarially sound'' and a transfer of 
     assets for less than fair market value has taken place. The 
     State Medicaid Manual provides life expectancy tables to be 
     used by states for determining whether an annuity is 
     actuarially sound.
       States and courts interpret this guidance differently. In 
     Mertz v. Houston, 155 F. Supp.2d 415 (E.D. Pa. 2001), for 
     example, the court held that if an annuity was actuarially 
     sound then the intent of the transfer was not relevant under 
     federal law. In a recent case in Ohio, a state court ruled 
     that it was proper to look at the intent of asset transfers, 
     even if the annuity was actuarially sound. (Bateson v. Ohio 
     Dept. of Job and Family (Ohio Ct. Appl., 12th, No. CA2003-09-
     093, Nov. 22, 2004).
       Medicaid Estate Recovery. Current law requires states to 
     recover the private assets (e.g., countable and non-countable 
     assets) of the estates of deceased beneficiaries who have 
     received certain long-term care services. Recovery of 
     Medicaid payments may be made only after the death of the 
     individual's surviving spouse, and only when there is no 
     surviving child under age 21 and no surviving child who is 
     blind or has a disability; Estate recovery is limited to the 
     amounts paid by Medicaid for services received by the 
     individual and is limited to only certain assets that remain 
     in the estate of the beneficiary upon his or her death. As a 
     result, estate recovery is generally applied to a 
     beneficiary's home, if available, and certain other assets 
     within a beneficiary's estate.
       For purposes of these recovery requirements, estates are 
     defined as all real and personal property and other assets in 
     an estate as defined in state probate law. At the option of 
     the state, recoverable assets also may include any other real 
     and personal property and other assets in which the person 
     has legal title or interest at the time of death, including 
     assets conveyed to a survivor, heir, or through assignment 
     through joint tenancy, tenancy in common, survivorship, life 
     estate, living trust, or other arrangement. Thus assets such 
     as living trusts, life insurance policies, certain annuities, 
     which may pass to heirs outside of probate, would be 
     subject to Medicaid recovery only if a state expanded its 
     definition of ``estate.''
     Senate Bill
       The Senate bill would amend section 1917(c)(1) of the 
     Social Security Act to include, in the definition of assets 
     subject to transfer penalties, an annuity purchased by or on 
     behalf of an annuitant who has applied for Medicaid-covered 
     nursing facility or other long-term care services. Annuities 
     that would not be subject to asset transfer penalties would 
     include an annuity as defined in section 408(b) or (q) of the 
     Internal Revenue Code (IRC), or purchased with proceeds from: 
     (1) an account or trust described in section 408(a)(c)(p) of 
     the IRC; (2) a simplified employee pension as defined in 
     section 408(k) of the IRC; or (3) a Roth IRA defined in 
     section 408A of the IRC. Annuities would also be excluded 
     from penalties if they are irrevocable

[[Page H12711]]

     and non-assignable, actuarially sound (as determined by 
     actuarial publications of the Office of the Chief Actuary of 
     the Social Security Administration), and provide for payments 
     in equal amounts during the term of the annuity, with no 
     deferral and no balloon payments.
       The Senate bill would amend section 1917(c)(1) of the 
     Social Security Act by adding that the purchase of an annuity 
     shall be treated as the disposal of an asset for less than 
     fair market value unless the state is named as the remainder 
     beneficiary in the first position for at least the total 
     amount of Medicaid expenditures paid on behalf of the 
     annuitant or is named as such a beneficiary in the second 
     position after the community spouse and such spouse does not 
     dispose of any such remainder for less than fair market 
     value.
       The Senate bill would amend Section 1917(b)(4) of the 
     Social Security Act to include an annuity in the definition 
     of estate that is subject to estate recovery unless the 
     annuity was purchased from a financial institution or other 
     business that sells annuities in the state as part of its 
     regular business.
     House Bill
       The House bill would amend section 1917 of the Social 
     Security Act by adding a new subsection that would require 
     individuals, at the initial application or recertification 
     for certain Medicaid long-term care services, to disclose to 
     the state the following:
       (A) A description of any interest the individual has in an 
     annuity (or similar financial instrument which provides for 
     the conversion of a countable asset to a noncountable assets, 
     as specified by the Secretary), regardless of whether the 
     annuity is irrevocable or is treated as an asset;
       Applications or recertification forms shall include a 
     statement that designates the state as the remainder 
     beneficiary under such an annuity or similar financial 
     instrument, subject to the following provisions:
       (A) For institutionalized individuals who receive certain 
     Medicaid-covered long-term care services, the state would 
     become the remainder beneficiary in the first position of an 
     annuity (in which he or she has an interest) for the total 
     amount paid by Medicaid on behalf of the individual; The 
     state becomes the remainder beneficiary in the second 
     position when there is a spouse, minor, or disabled child as 
     a named beneficiary.
       (B) In the case of disclosure concerning an annuity, the 
     state would notify the annuity's issuer of the state's right 
     as a preferred remainder beneficiary in the annuity for 
     Medicaid services furnished to the individual. This provision 
     would not prevent the issuer from notifying persons with any 
     other remainder of the state's interest in the remainder.
       (C) The state may require an issuer to notify when there is 
     a change in the amount of income or principal being withdrawn 
     from the amount being withdrawn at the time of the most 
     recent disclosure, as specified above. A state would take 
     such information into account when determining the amount of 
     the state's obligations for Medicaid or the individual's 
     eligibility. Such a change in amount would be deemed as a 
     transfer of an asset for less than fair market value unless 
     the individual demonstrates, to the state's satisfaction, 
     that the asset transfer was for fair market value.
       The Secretary may provide guidance to states on categories 
     of arms length transactions (such as the purchase of a 
     commercial annuity) that could be generally treated as an 
     asset transfer for fair market value.
       The House bill would not prevent a state from denying 
     Medicaid eligibility for an individual based on the income or 
     resources derived from an annuity.
       The House bill would apply to transactions (including the 
     purchase of an annuity) occurring on or after the date of the 
     enactment.
     Conference Agreement
       The conference agreement requires individuals, upon 
     Medicaid application and recertification of eligibility, to 
     disclose to the state, a description of any interest the 
     individual or community spouse has in an annuity (or similar 
     financial instrument, as specified by the Secretary), 
     regardless of whether the annuity is irrevocable or is 
     treated as an asset. Such application or recertification form 
     includes a statement naming the state as the remainder 
     beneficiary. In the case of disclosure concerning an annuity, 
     the state notifies the annuity's issuer of the state's right 
     as a preferred remainder beneficiary for Medicaid assistance 
     furnished to the individual. Issuers may notify persons with 
     any other remainder interest of the state's remainder 
     interest.
       States may require an issuer to notify the state when there 
     is a change in the amount of income or principal withdrawn 
     from the amount withdrawn at the point of Medicaid 
     application or recertification. States take this information 
     into account when determining the amount of the state's 
     financial share of costs or in the individual's eligibility 
     for Medicaid.
       The Secretary may provide guidance to states on categories 
     of transactions that may be treated as a transfer of asset 
     for less than fair market value. States may deny eligibility 
     for medical assistance for an individual based on the income 
     or resources derived from an annuity.
       The conference agreement amends section 1917(c)(1) of the 
     Social Security Act by adding that the purchase of an annuity 
     shall be treated as the disposal of an asset for less than 
     fair market value unless the state is named as the remainder 
     beneficiary in the first position for at least the total 
     amount of Medicaid expenditures paid on behalf of the 
     annuitant or is named as such a beneficiary in the second 
     position after the community spouse or minor or disabled 
     child and is named in the first position if such spouse or a 
     representative of such child disposes of any such remainder 
     for less than fair market value.
       The conference agreement amends section 1917(c)(1) of the 
     Social Security Act to include, in the definition of assets 
     subject to transfer penalties, an annuity purchased by or on 
     behalf of an annuitant who has applied for Medicaid-covered 
     nursing facility or other long-term care services. Annuities 
     that would not be subject to asset transfer penalties would 
     include an annuity as defined in subsection (b) and (q) of 
     section 408 of the Internal Revenue Code (IRC), or purchased 
     with proceeds from: (1) an account or trust described in 
     subsections (a), (c), and (p) of section 408 of the IRC; (2) 
     a simplified employee pension as defined in section 408(k) of 
     the IRC; or (3) a Roth IRA defined in section 408A of the 
     IRC. Annuities would also be excluded from penalties if they 
     are irrevocable and non-assignable, actuarially sound (as 
     determined by actuarial publications of the Office of the 
Chief Actuary of the Social Security Administration), and provide for 
payments in equal amounts during the term of the annuity, with no 
deferral and no balloon payments.

       The amendments apply to transactions, including the 
     purchase of annuity, occurring on or after the date of this 
     Act's enactment.
     Application of Income-First Rule in Applying Community 
         Spouse's Income Before Assets in Providing Support of 
         Community Spouse (Section 6013 of the Conference 
         Agreement, no provision in the Senate Bill, and Section 
         3113 of the House Bill)
     Current Law
       Current law includes provisions intended to prevent 
     impoverishment of a spouse whose husband or wife seeks 
     Medicaid coverage for long-term care services. These 
     provisions were added by the Medicare Catastrophic Coverage 
     Act (MCCA) of 1988 to address the situation that would 
     otherwise leave the spouse not receiving Medicaid (community 
     spouse) with little or no income or assets when the other 
     spouse is institutionalized or, at state option, receives 
     Medicaid's home- and community-based services. Before MCCA, 
     states could consider all of the assets of the community 
     spouse, as well as the spouse needing Medicaid coverage, to 
     be available to pay for care for the spouse needing Medicaid 
     coverage. These rules created hardships for the spouse living 
     in the community who was forced to spend down virtually all 
     of the couple's assets to Medicaid eligibility levels so that 
     the other spouse could qualify for coverage. MCCA established 
     new rules for the treatment of income and assets of married 
     couples, allowing the community spouse to retain higher 
     amounts of income and assets (on top of non-countable assets 
     such as a house, car, etc.) than allowed under general 
     Medicaid rules.
       Regarding income, current law exempts all of the community 
     spouse's income (e.g., pension or Social Security) from being 
     considered available to the other spouse for purposes of 
     Medicaid eligibility. For community spouses with more limited 
     income, section 1924(d) of the Social Security Act provides 
     for the establishment of a minimum monthly maintenance needs 
     allowance for each community spouse to try to ensure that the 
     community spouse has sufficient income to meet his or her 
     basic monthly needs. (The community spouse's minimum monthly 
     maintenance needs allowance is set at a level that is higher 
     than the official federal poverty level.) Once income is 
     attributed to each of the spouses according to their 
     ownership interest, the community spouse's monthly income is 
     compared against the minimum monthly maintenance needs 
     allowance. If the community spouse's monthly income amount is 
     less than the minimum monthly maintenance needs allowance, 
     the institutionalized spouse may choose to transfer an amount 
     of his or her income or assets to make up for the shortfall 
     (i.e. the difference between the community spouse's monthly 
     income and the state-specified minimum monthly maintenance 
     needs allowance). This transfer allows more income to be 
     available to the community spouse, while Medicaid pays a 
     larger share of the institutionalized spouse's care costs. 
     Within federal limits, states set the maximum monthly income 
     level that community spouses may retain. Federal requirements 
     specify that this amount may be no greater than $2,377.50 per 
     month, and no less than $1,561.25 per month in 2005.
       Regarding assets, federal law allows states to select the 
     amount of assets a community spouse may be allowed to retain. 
     This amount is referred to as the community spouse resource 
     allowance (CSRA). Federal requirements specify that this 
     amount may be no greater than $95,100 and no less than 
     $19,020 in total countable assets in 2005. When determining 
     eligibility, all assets of the couple are combined, counted, 
     and split in half, regardless of ownership. If the community 
     spouse's share of the assets is less than the

[[Page H12712]]

     state-specified maximum, then the Medicaid beneficiary must 
     transfer his or her share of the assets to the community 
     spouse until the community spouse's share reaches the 
     maximum. All other non-exempt assets must be depleted before 
     the applicant can qualify for Medicaid.
       States have some flexibility in the way they apply these 
     rules at the time in which a person applies through the fair 
     hearing process to raise his or her minimum maintenance needs 
     allowance. At this point, a state may decide to allocate more 
     income or resources from the institutionalized spouse to the 
     community spouse. In doing so, states have employed two 
     divergent methods. Under the method used by most states, 
     known as the ``income-first'' method, the state requires that 
     the institutionalized spouse's income is first allocated to 
     the community spouse to enable the community spouse 
     sufficient income to meet or, if approved by the state, 
     exceed the minimum monthly maintenance needs allowance; the 
     remainder, if any, is applied to the institutionalized 
     spouse's cost of care. Under this method, the assets of an 
     institutionalized spouse (e.g. an annuity or other income 
     producing asset) cannot be transferred to the community 
     spouse to generate additional income for the community spouse 
     unless the income transferred by the institutionalized spouse 
     would not enable the community spouse's total monthly income 
     to reach the state-approved monthly maintenance needs 
     allowance. This method generally requires a couple to deplete 
     a larger share of their assets than the resources-first 
     method.
       In contrast, under the other method, known as the 
     ``resources-first'' method, the couple's resources can be 
     protected first for the benefit of the community spouse to 
     the extent necessary to ensure that the community spouse's 
     total income, including income generated by the CSRA, meets 
     or, if approved by the state, exceeds the community spouse's 
     minimum monthly maintenance needs allowance. Additional 
     income from the institutionalized spouse that may be, but has 
     not been, made available for the community spouse is used 
     toward the cost of care for the institutionalized spouse. 
     This method generally allows the community-spouse to retain a 
     larger amount of assets than the income-first method.
       On September 7, 2001, the Secretary issued a proposed rule 
     (Federal Register Vol. 66, No. 174) that would have codified 
     state practices. The proposed rule would have allowed states 
     to choose between using either the income-first or resources-
     first method when determining whether the community spouse 
     has sufficient income to meet the minimum monthly maintenance 
     needs allowance. Under the proposed rule, states would not 
     have been able to apply different rules to different 
     individuals, on a case-by-case basis. The Secretary has not 
     issued a final rule.
     Senate Bill
       No provision.
     House Bill
       The House bill would amend section 1924(d) of the Social 
     Security Act to require that any transfer or allocation made 
     from an institutionalized spouse to meet the need of a 
     community spouse for a community spouse's monthly income 
     allowance be first made from income of the institutionalized 
     spouse. Only when sufficient income is not available, could 
     resources of the institutionalized spouse be transferred or 
     allocated.
       The House bill would apply to transfers and allocations 
     made on or after the date of this Act's enactment by 
     individuals who become institutionalized spouses on or after 
     such date.
     Conference Agreement
       The conference agreement amends section 1924(d), and 
     therein sections (c) and (e), of the Social Security Act to 
     require that states consider that all income of the 
     institutionalized spouse that could be made available to the 
     community spouse, in accordance with the calculation of the 
     post-eligibility allocation of income or additional income 
     allowance allocated at a fair hearing, has been made before 
     states allocate the community spouse an amount of resources 
     adequate to provide the difference between the minimum 
     monthly maintenance needs allowance and all income available 
     to the community spouse. These amendments apply to transfers 
     and allocations made on or after the date of this Act's 
     enactment by individuals who become institutionalized spouses 
     on or after such date.
     Disqualification for Long-Term Care Assistance for 
         Individuals with Substantial Home Equity (Section 6014 of 
         the Conference Agreement, no provision in the Senate 
         Bill, and Section 3114 of the House Bill).
     Current Law
       Within federal law, states set asset standards that 
     applicants must meet to qualify for Medicaid coverage. Among 
     other things, these standards specify a limit on the amount 
     of countable assets a person may have to qualify, as well as 
     define which types of assets are counted and not counted. In 
     general, countable assets cannot exceed $2,000 for an 
     individual applicant. States generally follow SSI rules for 
     computing both countable and non-countable assets.
       Under Medicaid and SSI rules, the value of an item may be 
     totally or partially excluded when calculating countable 
     resources. For example, the entire value of a car, regardless 
     of its worth, is excluded, but life insurance is counted to 
     the extent that the cash surrender value exceeds $1,500 (if 
     the total value of all life insurance policies on any person 
     does not exceed $1,500, no part of the cash surrender value 
     of such life insurance will be counted for eligibility 
     purposes).
       Current Medicaid and SSI asset counting practices generally 
     exclude the entire value of an applicant's home. A home is 
     defined as any property in which an individual (and spouse, 
     if any) has an ownership interest and which serves as the 
     individual's principal place of residence. This property 
     includes the shelter in which an individual resides, the land 
     on which the shelter is located and related outbuildings. If 
     an individual (and spouse, if any) moves out of his or her 
     home without the intent to return, the home becomes a 
     countable resource because it is no longer the individual's 
     principal place of residence. However, if an individual 
     leaves his or her home to live in an institution, the home is 
     still considered to be the individual's principal place of 
     residence, irrespective of the individual's intent to return, 
     as long as a spouse or dependent relative of the eligible 
     individual continues to live there. The individual's equity 
     in the former home becomes a countable resource effective 
     with the first day of the month following the month it is no 
     longer his or her principal place of residence.
     Senate Bill
       No provision.
     House Bill
       The House bi11 would amend section 1917 of the Social 
     Security Act to exclude from Medicaid eligibility for nursing 
     facility or other long-term care services, certain 
     individuals with an equity interest in their home of greater 
     than $750,000. (The Secretary would establish a process to 
     waive application of this provision for demonstrated cases of 
     hardship.) This amount would be increased, beginning in 2011, 
     from year to year based on the percentage increase in the 
     consumer price index for all urban consumers (all items, 
     United States city average), rounded to the nearest $1,000.
       Individuals whose spouse, child under age 21, or child who 
     is blind or disabled (as defined by the section 1614 of the 
     Social Security Act) lawfully resides in the individual's 
     home would not be excluded from eligibility. This provision 
     would not prevent an individual from using a reverse mortgage 
     or home equity loan to reduce the individual's total equity 
     interest in the home.
       The House bill would apply to individuals who are 
     determined eligible for Medicaid with respect to nursing 
     facility or other long-term care services based on an 
     application filed on or after January 1, 2006.
     Conference Agreement
       The Conference agreement amends section 1917 of the Social 
     Security Act to exclude from Medicaid eligibility for nursing 
     facility or other long-term care services, certain 
     individuals with an equity interest in their home of greater 
     than $500,000. A state may elect an amount that exceeds 
     $500,000, but does not exceed $750,000. These dollar amounts 
     are increased, beginning in 2011, from year to year based on 
     the percentage increase in the consumer price index for all 
     urban consumers (all items, United States city average), 
     rounded to the nearest $1,000.
       Individuals whose spouse, child under age 21, or child who 
     is blind or disabled (as defined by the section 1614 of the 
     Social Security Act) lawfully resides in the individual's 
     home would not be excluded from eligibility. This provision 
     would not prevent an individual from using a reverse mortgage 
     or home equity loan to reduce the individual's total equity 
     interest in the home.
       The House bill would apply to individuals who are 
     determined eligible for Medicaid with respect to nursing 
     facility or other long-term care services based on an 
     application filed on or after January 1, 2006.
     Enforceability of Continuing Care Retirement Communities 
         (CCRC) and Life Care Community Admission Contracts 
         (Section 6015 of the Conference Agreement, no provision 
         in the Senate Bill, and Section 3115 of the House Bill)
     Current Law
       Continuing Care Retirement Communities (CCRCs) offer a 
     range of housing and health care services to serve older 
     persons as they age and as their health care needs change 
     over time. CCRCs generally offer independent living units, 
     assisted living, and nursing facility care for persons who 
     can afford to pay entrance fees and who often reside in such 
     CCRCs throughout their older years. The services generally 
     offered include meals, transportation, emergency response 
     systems, and on-site nursing and physician services. Many 
     also offer home care, maid services and laundry. CCRCs were 
     developed, in large part, in response to an interest among 
     many elderly persons to age-in-place. CCRCs can be either 
     for-profit or not-for-profit CCRCs. They are paid primarily 
     with private funds, but a number also accept Medicaid payment 
     for nursing facility services. Although the majority of CCRC 
     residents do not meet the financial criteria for Medicaid, 
     some do. Under current law, section 1919(c)(5)(A)(i)(II) of 
     the Social Security Act prohibits Medicaid-certified nursing 
     facility from requiring that individuals provide them with 
     oral or written assurance that they are not eligible for, or 
     will not apply for, Medicaid or Medicare benefits.
     Senate Bill
       No provision.

[[Page H12713]]

     House Bill
       The House bill would amend section 1919(c)(5)(A)(i)(II) of 
     the Social Security Act to provide an exception for state-
     licensed, registered, certified, or equivalent continuing 
     care retirement communities (CCRCs) or a life care community 
     (including nursing facility services provided as part of that 
     community) that are certified to accept Medicaid and/or 
     Medicare payment to allow them to require in their admissions 
     contracts that residents spend their resources (subject to 
     Medicaid's rules concerning the resources allowance for 
     community spouses, described above), declared for the 
     purposes of admission, on their care before they apply for 
     Medicaid.
       The House bill would also amend section 1917 of the Social 
     Security Act to consider certain entrance fees for CCRCs or 
     life care communities to be countable resources, and thus 
     available to the applicant, for purposes of the Medicaid 
     eligibility determination. For applicants with community 
     spouses, only that part of the entrance fee that is not 
     protected for by the community spouse's resource allowance 
     would be considered in the computation of the spousal share 
     available to Medicaid. Entrance fees that would be considered 
     a resource available to the individual would meet the 
     following criteria:
       (A) the individual would have the ability to use the 
     entrance fee, or the contract provides that the entrance fee 
     could be used, to pay for care should other resources or 
     income of the individual be insufficient to pay for care;
       (B) the individual would be eligible for a refund of any 
     remaining entrance fee when the individual dies or terminates 
     the CCRC or life care community contracts and leaves the 
     community; and
       (C) the entrance fee does not confer an ownership interest 
     in the continuing care retirement community or life care 
     community
     Conference Agreement
       The conference agreement includes the House provision 
     except that a CCRC or life care community cannot retain a 
     portion of an entrance fee, otherwise made available to spend 
     on care before applying for Medicaid, on account of a 
     community spouse's resource allowance.
     Additional Reforms of Medicaid Asset Transfer Rules
     Requirement to Impose Partial Months of Ineligibility 
         (Section 6016(a) of the Conference Agreement, Section 
         6011 (a) of the Senate Bill, and no provision in the 
         House Bill)
     Current Law
       Current law requires states to impose penalties on 
     individuals applying for Medicaid who transfer assets (all 
     income and resources of the individual and of the 
     individual's spouse) for less than fair market value (an 
     estimate of the value of an asset if sold at the prevailing 
     price at the time it was actually transferred). Specifically, 
     the roles require states to delay Medicaid eligibility for 
     individuals receiving care in a nursing home, and, at state 
     option, certain people receiving care in community-based 
     settings, who have transferred assets for less than fair 
     market value on or after a ``look-back date.'' The look-back 
     date'' is 36 months prior to application for Medicaid for 
     income and most assets disposed of by the individual, and 60 
     months in the case of certain trusts.
       The length of the delay is determined by dividing the total 
     cumulative uncompensated value of all assets transferred by 
     the individual (or individual's spouse) on or after the look-
     back date by the average monthly cost to a private patient of 
     a nursing facility in the state (or, at the option of the 
     state, in the community in which the individual is 
     institutionalized) at the time of application. For example, a 
     transferred asset worth $60,000, divided by a $5,000 average 
     monthly private pay rate in a nursing home, results in a 12-
     month period of ineligibility for Medicaid long-term care 
     services. The period of ineligibility begins the first day of 
     the first month during or after which assets have been 
     improperly transferred and which does not occur in any other 
     period of ineligibility. There is no limit to the length of 
     the penalty period.
       When calculating the length of the penalty period when 
     assets are transferred for less than fair market value, 
     current law allows states to ``round down,'' or not include 
     in the ineligibility period the quotient amounts (resulting 
     from the division of the value of the transferred asset by 
     the average monthly private pay rate in a nursing home) that 
     are less than one month. For example, in a state with an 
     average private stay in a nursing home of $4,100, an 
     ineligibility period for an improper transfer of $53,000 
     could be 12.92 months (i.e. $53,000/$4,100=12.92). Although 
     some states would impose an ineligibility period of 12 months 
     and 28 days (of a 31 day month), other states may round down 
     the quotient to an ineligibility period of 12 months only.
     Senate Bill
       The Senate bill would amend Section 1917(c)(1)(E) of the 
     Social Security Act by adding that a state shall not round 
     down, or otherwise disregard any fractional period of 
     ineligibility when determining the ineligibility period.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate provision.
     Authority for States to Accumulate Multiple Transfers into 
         One Penalty Period (Section 6016(b) of the Conference 
         Agreement, Section 6011(b) of the Senate Bill, and no 
         provision in the House Bill)
     Current Law
       Current law and additional CMS guidance provides that when 
     a number of assets are transferred for less than fair market 
     value on or after the look-back date during the same month, 
     the penalty period is calculated using the total cumulative 
     uncompensated value of all assets transferred during that 
     month by the individual (or individual's spouse) divided by 
     the average monthly cost to a private patient of a nursing 
     facility in the state (or, at the option of the state, in the 
     community in which the individual is institutionalized) at 
     the time of application. When a number of assets are 
     transferred during different months, then the rules vary 
     based upon whether the penalty periods overlap. If a penalty 
     period for each transfer overlaps with the beginning of a new 
     penalty period, then states may either add together the value 
     of the transferred assets and calculate a single penalty 
     period or impose each penalty period sequentially. If the 
     penalty period for each transfer does not overlap, then 
     states must treat each transfer as a separate event and 
     impose each penalty period starting on the first day of the 
     month in which each transfer was made.
     Senate Bill
       The Senate bill would amend Section 1917(c)(1) of the 
     Social Security Act by adding that for an individual or an 
     individual's spouse who disposes of multiple assets in more 
     than one month for less than fair market value on or after 
     the applicable look-back date, states may determine the 
     penalty period by treating the total, cumulative 
     uncompensated value of all assets transferred by the 
     individual (or individual's spouse) during all months as one 
     transfer. States would be allowed to begin such penalty 
     periods on the earliest date which would apply to such 
     transfers.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate provision but 
     refers to the disposal of multiple fractional transfers of 
     assets instead of multiple assets.
     Inclusion of Transfer of Certain Notes and Loans Assets 
         (Section 6016(c) of the Conference Agreement, Section 
         6011(c) of the Senate Bill, and no provision in the House 
         Bill)
     Current Law
       Under current law, states set standards, within federal 
     parameters, for the amount and type of assets that applicants 
     may have to qualify for Medicaid. In general, countable 
     assets cannot exceed $2,000 for an individual. However, not 
     all assets are counted for eligibility purposes. The 
     standards states set also include criteria for defining non-
     countable, or exempt, assets. States generally follow rules 
     for the Supplemental Security Income (SSI) program for 
     computing both countable and non-countable assets.
       Under state Medicaid and SSI rules, countable assets may 
     include, but are not limited to, funds in a savings or money 
     market account, stocks or other types of equities, 
     accelerated cash benefits from certain types of insurance 
     policies, and funds from certain types of trusts that can be 
     obtained by the individual, the individual's spouse, or 
     anyone acting for the individual or the individual's spouse, 
     to pay for the individual's medical or nursing facility care, 
     even if the funds or payments are not distributed. Under 
     Medicaid and SSI rules, non-countable assets include an 
     individual's primary place of residence, one automobile, 
     household goods and personal effects,\1\ property essential 
     to income-producing activity, up to $1,500 in burial funds, 
     life insurance policies whose total face value is not greater 
     than $1,500, and miscellaneous other items.
---------------------------------------------------------------------------
     \1\ Under former SSI rules, there were restrictions placed on 
     the value of the automobile and household goods and personal 
     effects that could be excluded from countable assets. As of 
     March 9, 2005, one automobile and all household goods and 
     personal effects are excluded, regardless of their value. 70 
     Federal Register 6340, no. 24, Feb. 7, 2005.
---------------------------------------------------------------------------
       Other rules defining countable and non-countable assets 
     apply only in particular states. Their rules are generally 
     intended to restrict the use of certain financial instruments 
     (e.g. annuities, promissory notes, or trusts) to protect 
     assets so that applicants can qualify for Medicaid earlier 
     than they might otherwise.
     Senate Bill
       The Senate bill would amend Section 1917(c)(1) of the 
     Social Security Act to make additional assets subject to the 
     look-back period, and thus a penalty, if established or 
     transferred for less than fair market value. Such assets 
     would include funds used to purchase a promissory note, loan 
     or mortgage, unless the repayment terms are actuarially 
     sound, provide for payments to be made in equal amounts 
     during the term of the loan and with no deferral nor balloon 
     payments, and prohibit the cancellation of the balance upon 
     the death of the lender.
       In the case of a promissory note, loan, or mortgage that 
     does not satisfy these requirements, their value shall be the 
     outstanding balance due as of the date of the individual's 
     application for certain Medicaid long-term care services.

[[Page H12714]]

     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate provision.
     Inclusion of Transfers to Purchase Life Estates (Section 
         6016(d) of the Conference Agreement, Section 6011(e) of 
         the Senate Bill, and no provision in the House Bill)
     Current Law
       Current law does not specify whether life estates should be 
     treated as countable or noncountable assets for purposes of 
     applying the Medicaid asset transfer rules. In CMS guidance, 
     however, the Secretary specifies that the establishment of a 
     life estate constitutes a transfer of assets. The guidance 
     also explains that a transfer for less than fair market value 
     occurs whenever the value of the transferred asset is greater 
     than the value of the rights conferred by the life estate. 
     According to CMS, a life estate is involved when an 
     individual who owns property transfers ownership to another 
     individual while retaining, for the rest of his or her life 
     (or the life of another person), certain rights to that 
     property. General1y, a life estate entitles the grantor to 
     possess, use, and obtain profits from the property as long as 
     he or she lives, even though actua1 ownership of the property 
     has passed to another individual.
     Senate Bill
       The Senate bill would amend Section 1917(c)(l) of the 
     Social Security Act to add a provision that would redefine 
     the term `assets,' with respect to the Medicaid asset 
     transfer rules, to include the purchase of a life estate 
     interest in another individual's home unless the purchaser 
     resides in the home for at least one year after the date of 
     purchase.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate provision.
     Effective Date (Section 6016(e) of the Conference Agreement, 
         Section 6011(g) of the Senate Bill, and no provision in 
         the House Bill)
     Current Law
       No provision.
     Senate Bill
       This provision would apply to payment made under the 
     Medicaid program for calendar quarters beginning on or after 
     the date of this Act's enactment, without regard to whether 
     or not final regulations to carry out such amendments have 
     been promulgated by such date. Amendments made by this 
     provision would not apply to Medicaid assistance provided for 
     services before the date of enactment, with respect to assets 
     disposed of on or before the date of enactment, or with 
     respect to trusts established on or before the date of 
     enactment.
       In the case of a state that the Secretary of Health and 
     Human Services determines requires state legislation to meet 
     the additional requirements of this provision, the state 
     Medicaid plan would not be regarded as failing to comply with 
     the requirements 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 enactment of this Act. In the case of a state 
     that has a two-year legislative. session, each year of the 
     session would be considered to be a separate regular session 
     of the state legislature. This amendment applies to provision 
     under section 6011 of the Senate bill.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate provision with 
     respect to amendments made by section 6016.

           Subchapter B--Expanded Access to Certain Benefits

     Expansion of State Long-Term Care Partnership Program 
         (Section 6021 of the Conference Agreement, and Section 
         6012 of the Senate Bill, and Section 3133 of the House 
         Bill)
     Current Law
       Under Medicaid's long-term care (LTC) insurance partnership 
     program, certain persons who have exhausted (or used at least 
     some of) the benefits of a private long-term care insurance 
     policy may access Medicaid without meeting the same means-
     testing requirements as other groups of Medicaid eligibles. 
     For these individuals, means-testing requirements are relaxed 
     at: (1) the time of application to Medicaid; and (2) the time 
     of the beneficiary's death when Medicaid estate recovery is 
     generally applied.
       In general, states allow individuals to retain no more than 
     $2,000 in countable assets and exempt certain non-countable 
     assets such as an individual's primary place of residence, 
     one automobile, household goods and personal effects. Under 
     section 1902 of the Social Security Act, a state may request 
     the Secretary's permission to amend its Medicaid state plans 
     to allow certain applicants to retain greater amounts of 
     countable assets than other applicants and still qualify for 
     Medicaid. Specifically, states that obtain the Secretary's 
     approval may disregard some or all of the assets of persons 
     applying for Medicaid who have purchased long-term care 
     insurance policies.
       Section 1917 of the Social Security Act (amended by the 
     Omnibus Budget Reconciliation Act of 1993, P.L. 103-66) 
     allows only those states with an approved state plan 
     amendment as of May 14, 1993 to exempt individuals from 
     Medicaid estate recovery who apply to Medicaid after 
     exhausting their private long-term care insurance benefits. 
     By that date, five states (California, Connecticut, Indiana, 
     Iowa, and New York) had received CMS approval. All of these 
     states, except Iowa, have implemented partnership programs.
       The four partnership states with active programs have 
     different models for determining the amount of assets that an 
     eligible participant may protect. Connecticut and California 
     use a dollar-for-dollar model, in which the amount of the 
     assets protected is equivalent to the value of the benefit 
     package paid by the policy purchased (e.g., $100,000 of 
     nursing-home or assisted living benefits paid enables that 
     individual to retain up to $100,000 in assets and still 
     qualify for Medicaid coverage in that state). New York uses a 
     total asset protection model in which persons who purchase 
     certain state-approved policies may qualify for Medicaid 
     without having to meet any of Medicaid's asset criteria. 
     Indiana uses a hybrid model, offering both dollar-for-dollar 
     and total asset protection (Indiana switched from the dollar-
     for-dollar model to the hybrid model in 1998).
       Federal oversight of long-term care insurance is largely 
     limited to provisions established by the Health Insurance 
     Portability and Accountability Act of 1996 (HIPAA, P.L. 104-
     191). HIPAA established new rules regarding the tax treatment 
     of LTC insurance and expenses, and defined the requirements 
     for a tax-qualified LTC insurance policy. LTC insurance 
     products are largely regulated by states. Every state and the 
     District of Columbia has some laws governing LTC insurance. 
     Many of these laws reflect guidance provided by the National 
     Association of Insurance Commissioners (NAIC), an 
     organization of state insurance regulators. This guidance, 
     provided in the form of a Model Act and Model Regulations for 
     LTC insurance, addresses a number of areas, including the 
     following.
       Model Regulations:
        Application forms and replacement coverage;
        Reporting requirements;
        Filing requirements for marketing;
        Standards for marketing;
        Appropriateness of recommended purchase;
        Standard format outline of coverage; and
        Requirements to deliver shopper's guide.
       Model Act:
        Outline of coverage;
        Requirements for certificates under group plans;
        Policy summary;
        Accelerated death benefits; and
        Incontestability period.
       HIPPA also includes requirements that tax-qualified 
     policies comply with consumer protections regarding the 
     delivery of policies, information on denials of claims, and 
     disclosure. While many state laws and regulations are based 
     largely on the NAIC standards, others have adopted only some 
     of these standards. As a result, there is significant 
     variation in regulatory practices across states.
       National Clearinghouse for Long-Term Care. No provision in 
     current law requires the establishment of a long-term care 
     consumer clearinghouse.
       In related activities, DHHS has funded some states to 
     establish state-based consumer-friendly access to information 
     about long-term care services. In FY2003 and FY2004, the 
     Centers for Medicare and Medicaid (CMS) and AoA awarded 
     approximately $19 million in grants to states for the purpose 
     of assisting their efforts to create a single, coordinated 
     system of information and access for all persons seeking long 
     term care to minimize confusion, enhance individual choice, 
     and support informed decision-making. In FY2005, $15 million 
     was awarded. A total of 43 states have received grants for 
     this purpose. Some of the common activities under this grants 
     program include information and referral, outreach, 
     counseling about public benefits and long-term care options, 
     and case management. States' methods for implementing the 
     grant may vary; some states have established an actual 
     physical location, and other states have established a 
     statewide clearinghouse through a toll-tree number or a web-
     based information site.
       In addition, CMS has made available to the public, via its 
     website, a comparison of Medicare and Medicaid-certified 
     nursing homes and home health agencies. The information 
     provides detailed facility and agency information and 
     characteristics, and contains several measures of quality 
     (e.g., improvement in mobility). This website does not cover 
     assisted living facilities, group homes and other residential 
     facilities that are not nursing facilities; nor does it cover 
     non-medical, non-certified, home and community-based long-
     term care services.
     Senate Bill
       The Senate bill would exempt an additional group of persons 
     with certain long-term care insurance plans from Medicaid 
     estate recovery. This group would include individuals who 
     received Medicaid under a Qualified State Long-Term Care 
     Insurance Partnership plan meeting requirements A through G 
     described below. The provision would also require that 
     existing LTC insurance partnership programs satisfy 
     requirements B through G below for LTC insurance

[[Page H12715]]

     policies sold on or after 2 years after enactment.
       The Senate bill would define LTC insurance policies as 
     including, but not be limited to, certificates issued under 
     group insurance contracts [also would include individual and 
     other LTC insurance contracts]. The term ``Qualified State 
     LTC Insurance Partnership,'' would mean a state with an 
     approved Medicaid State plan amendment meeting the following 
     requirements:
       (A) the disregard of any assets or resources in an amount 
     equal to the amount of payments made to, or on behalf of, an 
     individual who is a beneficiary under any LTC insurance 
     policy sold under such plan amendment;
       (B) a state would treat benefits paid under any LTC 
     partnership insurance policy sold under another states' 
     Qualified LTC Insurance Partnership'' or a long-term care 
     insurance policy, the same as the state treats benefits paid 
     under such a policy under the state's plan amendment;
       (C) any long-term care insurance policy sold would be 
     required to be a tax-qualified policy (Meeting specifications 
     defined in section 7702B(b) of the Internal Revenue Code of 
     1986) and meet the consumer protection requirements described 
     below;
       (D) any policy would be required to provide for compound 
     annual inflation protection of at least 5 percent and asset 
     protection that does not exceed $250,000. This amount would 
     be increased, beginning with 2007, from year-to-year based on 
     the percentage increase in the medical care expenditure 
     category of the Consumer Price Index for Urban Consumers 
     (United States city average), published by the Bureau of 
     Labor Statistics rounded to the nearest $100;
       (E) an insurer would be allowed to rescind a LTC insurance 
     policy in effect for at least 2 years or deny an otherwise 
     valid LTC insurance claim only upon a showing (1) of 
     misrepresentation that is material to the acceptance of 
     coverage; (2) pertains to the claim made; and (3) could not 
     have been known by the insurer at the time the policy was 
     sold;
       (F) any individual who sells these policies would be 
     required to receive training and demonstrate evidence of an 
     understanding of the policy and how it relates to other 
     public and private LTC coverage; and
       (G) the issuer would be required to report, to the 
     Secretary required information, and to report to the state: 
     (1) the information or data reported to the Secretary, (2) 
     the information or data required under the minimum reporting 
     requirements developed under section 103(c)(1)(B) of the 
     Improving LTC Choices Act of 2005, and (3) such additional 
     information or data as the state may require. If a LTC 
     insurance policy is exchanged for another such policy, the 
     effective date of coverage under the first policy would 
     determine when coverage first becomes effective.
       LTC insurance policies would be required to meet the 
     following requirements specified in the National Association 
     of Insurance Commissioner's (NAIC) Long-Term Care Insurance 
     Model Regulations and Long-Term Care Insurance Model Act (as 
     adopted as of October 2000). The requirements include the 
     following topics described below.
       Model Regulations:
        Guaranteed renewal or noncancellability;
        Prohibitions on limitations and exclusions;
        Extension of benefits;
        Continuation or conversion of coverage;
        Discontinuance and replacement of policies;
        Unintentional lapse;
        Disclosure;
        Required disclosure of rating practices to 
     consumer;
        Prohibitions against post-claims underwriting;
        Minimum standards;
        Application forms and replacement coverage;
        Reporting requirements;
        Filing requirements for marketing;
        Standards for marketing, including inaccurate 
     completion of medical histories;
        Suitability;
        Prohibition against preexisting conditions and 
     probationary periods in replacement policies or certificates;
        Contingent nonforfeiture benefits if the 
     policyholder declines the offer of a nonforfeiture provision;
        Standard format outline of coverage; and
        Deliver shopper's guide.
       Model Act:
        Preexisting conditions;
        Prior hospitalization;
        Contingent nonforfeiture benefits;
        Right of return;
        Outline of coverage;
        Requirements for certificates under group plans;
        Policy summary; and
        Monthly reports on accelerated death benefits.
       These provisions of the Long-Term Care Insurance Model 
     Regulation and Long-Term Care Insurance Model Act would be 
     treated as including any other provision the Regulation or 
     Act necessary to implement the provision. The determination 
     of whether any requirement under the Model Act or Regulation 
     have been met would be made by the Secretary.
       No later than one year after enactment, the Secretary, in 
     consultation with the NAIC, issuers of LTC insurance 
     policies, states with experience with LTC insurance 
     partnership plans, other states, and representatives of 
     consumers of LTC insurance policies would be required to 
     develop uniform standards for:
        Reciprocity. These standards would ensure that LTC 
     insurance policies issued under the state LTC partnership 
     (described in this provision) would be portable to other 
     states with such-LTC insurance partnerships;
        Minimum reporting requirements. These standards 
     would be required to specify the data and information that 
     each issuer of LTC insurance policies under State LTC 
     insurance partnerships shall report to the state with which 
     it has such a partnership. The requirements developed would 
     be required to specify the type and format of the data and 
     information to be reported and the frequency with which such 
     reports are to be made. States would be permitted to require 
     an issuer of LTC insurance policy sold in the state 
     (regardless of whether the policy is issued under a State LTC 
     insurance partnership) to require the issuer to report 
     information or data to the state that is in addition to the 
     information or data required under these minimum reporting 
     requirements;
        Suitability. These standards would be for 
     determining whether a long-term care insurance policy is 
     appropriate for the needs of an applicant (based on guidance 
     of the NAIC regarding suitability).
       The Secretary, in consultation with those listed above, 
     would also be required to submit recommendations to Congress 
     with respect to the following:
        Incontestability. Recommendations regarding 
     whether the requirements relating to incontestability for LTC 
     insurance policies sold under a state partnership program 
     should be modified based on NAIC guidance;
        Nonforfeiture. Recommendations regarding whether 
     requirements relating to nonforfeiture for issuers of LTC 
     insurance policies under a state LTC insurance partnership 
     program should be modified to reflect changes in an insured's 
     financial circumstances;
        Independent certification for benefits assessment. 
     Recommendations regarding whether uniform standards for 
     requiring benefits assessment evaluations to be conducted by 
     independent entities should be established for issuers of LTC 
     insurance policies under such a state partnership program, 
     and if so, what such standards should be;
        Rating requirements. Recommendations regarding 
     whether uniform standards for the establishment of, and 
     annual increases in, premiums for LTC insurance policies sold 
     under such a state partnership program should be established 
     and if so, what such standards should be; and
        Dispute Resolution. Recommendations regarding 
     whether uniform standards are needed to ensure fair 
     adjudication of coverage disputes under LTC insurance 
     policies sold under such a state partnership program and the 
     delivery of the benefits promised under such policies.
       The DHHS Secretary would be required to annually report to 
     Congress on the LTC insurance partnerships. Such reports 
     would be required to include analyses of the extent to which 
     such partnerships expand or limit access of individuals to 
     LTC and the impact of such partnerships on Federal and State 
     Medicaid expenditures and federal Medicare expenditures.
       Effective Date. These amendments would become effective on 
     October 1, 2007 and apply to long-term care insurance 
     policies sold on or after that date.
     House Bill
       The House bill would amend section 1917(b)(1)(C)(ii) of the 
     Social Security Act to allow additional groups of individuals 
     in states with state plan amendments approved after May 14, 
     1993 to be exempt from estate recovery requirements if the 
     amendment provides for a qualified state long-term care 
     insurance partnership program. The term ``Qualified State LTC 
     Insurance Partnership,'' would mean a Medicaid State plan 
     amendment that provides for the disregard of any assets or 
     resources in the amount equal to the amount of insurance 
     benefit made to or on behalf of an individual who is a 
     beneficiary under a long-term care policy (including a 
     certificate issued under a group insurance contract), if the 
     following requirements are met:
       (I) The policy covers an insured who was a resident of such 
     state when coverage first became effective under the policy. 
     (In the case of a long-term care insurance policy exchanged 
     for another such policy, this requirement would apply based 
     on the coverage of the first such policy that was exchanged);
       (II) The policy is a qualified long-term care insurance 
     policy (meeting specifications defined in section 7702B(b) of 
     the Internal Revenue Code of 1986) issued on or after the 
     first day of the first calendar quarter in which the plan 
     amendment was submitted to the Secretary;
       (III) If the policy does not provide some level of 
     inflation protection, the insured was offered, before the 
     policy was sold, a long-term care insurance policy that 
     provides some level of inflation protection;
       (IV) The state Medicaid agency provides information and 
     technical assistance to the state insurance department on the 
     insurance department's role of assuring that any individual 
     who sells a long-term care insurance policy under the 
     partnership receives training or demonstrates evidence of an 
     understanding of such policies and how they relate to other 
     public and private coverage of long-term care;
       (V) The issuer of the policy provides regular reports to 
     the Secretary that include, in

[[Page H12716]]

     accordance with the Secretary's regulations (promulgated 
     after consultation with the states), notification regarding 
     when all benefits provided under the policy have been paid 
     and the amount of such benefits paid, when the policy 
     otherwise terminates, and such other information as the 
     Secretary determines appropriate to the administration of 
     such partnerships;
       (VI) The state does not impose any requirement affecting 
     the terms or benefits of such a policy unless the state 
     imposes such requirement on long-term care insurance policies 
     without regard to whether the policy is covered under the 
     partnership or is offered in connection with such a 
     partnership.
       The Secretary, as appropriate, would provide copies of the 
     state reports to the state involved and would promote the 
     education of consumers regarding qualified state long-term 
     care insurance partnerships. In addition, in consultation 
     with other appropriate Federal agencies, issuers of long-term 
     care insurance, and the National Association of Insurance 
     Commissioners, the Secretary would develop recommendations 
     for Congress to authorize and fund a uniform minimum data set 
     to be reported electronically by all issuers of long-term 
     care insurance policies under qualified state long-term care 
     insurance partnerships to a secure, centralized electronic 
     query and report generating mechanism that State, the 
     Secretary, and other Federal agencies can access.
       To permit portability in long-term care insurance policies 
     purchased under state long-term care insurance partnerships, 
     the Secretary may develop, in consultation with the states 
     and the National Association of Insurance Commissioners, 
     uniform standards for reciprocal recognition of such policies 
     among states with qualified state long-term care insurance 
     partnerships.
       Effective Date. A state plan amendment that provides for a 
     qualified state long-term care insurance partnership would be 
     effective for long-term care insurance policies issued on or 
     after a date, specified in the amendment, that is not earlier 
     than the first day of the first calendar quarter in which the 
     plan amendment was submitted to the Secretary.
     Conference Agreement
       The conference agreement amends section 1917(b)(l)(C)(ii) 
     of the Social Security Act to: (1) require that existing 
     partnership programs not allow consumer protection standards, 
     as defined in a Medicaid state plan amendment, to be less 
     stringent (determined by the Secretary) than those applying 
     under the state plan amendment as of December 31, 2005; and 
     (2) allows certain individuals in states with state plan 
     amendments approved after May 14, 1993 to be exempt from 
     estate recovery requirements if the amendment provides for 
     the disregard of any assets or resources in the amount equal 
     to the amount of insurance benefits made to or on behalf of 
     an individual who is a beneficiary under a long-term care 
     policy (including a certificate issued under a group 
     insurance contract), if the following requirements are met:
       (I) The policy covers an insured who was a resident of such 
     state when coverage first became effective under the policy. 
     In the case of a long-term care insurance policy exchanged 
     for another such policy, this requirement applies based on 
     the coverage of the first such policy that was exchanged;
       (II) The policy is a qualified long-term care insurance 
     policy (meeting specifications defined in section 7702B(b) of 
     the Internal Revenue Code of 1986) issued not earlier than 
     the effective date of the Medicaid state plan amendment;
       (III) The policy meets the following requirements specified 
     in the National Association of Insurance Commissioner's 
     (NAIC) Long-Term Care Insurance Model Regulations and Long-
     Term Care Insurance Model Act (as adopted as of October 
     2000).
       Model Regulations relating to:
        Guaranteed renewal or noncancellability (including 
     some sections of the Model Act);
        Prohibitions on limitations and exclusions;
        Extension of benefits;
        Continuation or conversion of coverage;
        Discontinuance and replacement of policies;
        Unintentional lapse;
        Disclosure;
        Required disclosure of rating practices to 
     consumer;
        Prohibitions against post-claims underwriting;
        Minimum standards;
        Application forms and replacement coverage;
        Reporting requirements;
        Filing requirements for marketing;
        Standards for marketing, including inaccurate 
     completion of medical histories;
        Prohibition against preexisting conditions and 
     probationary periods in replacement policies or certificates;
        Contingent nonforfeiture benefits if the 
     policyholder declines the offer of a nonforfeiture provision;
        Appropriateness of recommended purchase;
        Standard format outline of coverage; and
        Delivery of shopper's guide.
       Model Act relating to:
        Preexisting conditions;
        Prior hospitalization;
        Contingent nonforfeiture benefits;
        Right of return;
        Outline of coverage;
        Requirements for certificates under group plans;
        Policy summary; and
        Monthly reports on accelerated death benefits.
       These provisions of the Long-Term Care Insurance Model 
     Regulation and Long-Term Care Insurance Model Act are treated 
     as including any other provision of the Regulation or Act 
     necessary to implement the provision. Long-term care 
     insurance policies issued in a state shall be deemed as 
     meeting the requirements of the model regulation or the Model 
     Act if the state plan amendment provides that the State 
     insurance commissioner for the state certifies (in a manner 
     satisfactory to the Secretary) that the policy meets such 
     requirements.
       (IV) If at the date of purchase the purchaser is younger 
     than age 61, the policy must provide for compound inflation; 
     if the purchaser is at least age 61 but not older than age 
     76, the policy must provide some level of inflation 
     protection; and if the purchaser is age 76 or older, the 
     policy may, but is not required to, provide some level of 
     inflation protection.
       (V) The state Medicaid agency provides information and 
     technical assistance to the state insurance department on the 
     insurance department's role of assuring that any individual 
     who sells a long-term care insurance policy under the 
     partnership receives training or demonstrates evidence of an 
     understanding of such policies and how they relate to other 
     public and private coverage of long-term care;
       (VI) The issuer of the policy provides regular reports to 
     the Secretary that include, in accordance with the 
     Secretary's regulations (after consultation with the National 
     Association of Insurance Commissioners, issuers of long-term 
     care insurance policies, states with experience with long-
     term care insurance partnership plans, other states, and 
     representatives of consumers of long-term care insurance 
     policies) notification regarding when all benefits and their 
     amounts under the policy have been paid, when the policy 
     otherwise terminates, and other information that the 
     Secretary determines is appropriate to the administration of 
     the partnership programs. These regulations shall specify the 
     data format and information to be reported, and the frequency 
     with which such reports are to be made. The Secretary, as 
     appropriate, provides copies of the reports to the state 
     involved;
       (VII) The state does not impose any requirement affecting 
     the terms or benefits of such a policy unless the state 
     imposes such requirement on long-term care insurance policies 
     without regard to whether the policy is covered under the 
     partnership or is offered in connection with such a 
     partnership.
       In consultation with other appropriate Federal agencies, 
     issuers of long-term care insurance, and the National 
     Association of Insurance Commissioners, state insurance 
     commissioners, states with experience with long-term care 
     insurance partnership plans, other states, and 
     representatives of consumers of long-term care insurance 
     policies, the Secretary develops recommendations for Congress 
     to authorize and fund a uniform minimum data set to be 
     reported electronically by all issuers of long-term care 
     insurance policies under qualified state long-term care 
     insurance partnerships to a secure, centralized electronic 
     query and report generating mechanism that State, the 
     Secretary, and other Federal agencies can access.
       Not later than 12 months after the National Association of 
     Insurance Commissioners issues a revision, update or other 
     modification of a model regulation or model act provision 
     listed above or substantially related those listed above, the 
     Secretary reviews these changes, determines whether 
     incorporating such changes into the corresponding provision 
     would improve qualified state long-term care insurance 
     partnerships, and, if so, incorporate the changes into the 
     provision.
       States may require issuers of long-term care insurance 
     policies sold in that state (regardless of whether the policy 
     is issued under a qualified state long-term care insurance 
     partnership) to report additional information or data to the 
     state.
       To permit portability in long-term care insurance policies 
     purchased under state long-term care insurance partnerships, 
     the Secretary develops no later than January 1, 2007, in 
     consultation with the National Association of Insurance 
     Commissioners, states with experience with long-term care 
     insurance partnership plans, other state, and representatives 
     of consumers of long-term care insurance policies, standards 
     for uniform reciprocal recognition of such policies among 
     states with qualified state long-term care insurance 
     partnerships which have benefits paid under such policies 
     will be treated the same by all such states, and states with 
     such partnerships shall be subject to such standards unless 
     the state notifies the Secretary of the State's election to 
     be exempt from such standards.
       The Secretary annually reports to Congress on the long-term 
     care insurance partnerships. Such reports would include 
     analyses of the extent to which partnership programs expand 
     or limit access of individuals to long-term care and the 
     impact of such partnerships on federal and state expenditures 
     under Medicare and Medicaid. Nothing in this provision shall 
     require the Secretary to conduct an independent review of 
     each long-term care insurance policy offered under or in 
     connection with a state partnership program.
       A state plan amendment that provides for a qualified state 
     long-term care insurance

[[Page H12717]]

     partnership may provide that the amendment be effective for 
     long-term care insurance policies issued on or after a date 
     that is not earlier than the first day of the first calendar 
     quarter in which the plan amendment was submitted to the 
     Secretary.
       With respect to policy exchanges, Conferees expect existing 
     policy holders will be able to exchange existing policies for 
     Partnership policies in accordance with policy provisions and 
     state law after a State's plan amendment is effective.
       National Clearinghouse for Long-Term Care. The Secretary 
     establishes a National Clearinghouse for Long-Term Care 
     Infonnation (this may be done through a contract or 
     interagency agreement). The National Clearinghouse for Long-
     Term Care: (1) educates consumers with respect to the 
     availability and limitations of Medicaid long-term care 
     coverage, including state Medicaid eligibility and estate 
     recovery requirements; (2) provides objective information to 
     assist consumers with the decision-making process for 
     determining whether to purchase long-term care insurance or 
     to pursue other private market alternatives for purchasing 
     long-term care; (3) provide contact information for 
     additional objective sources on planning for long-term care 
     services needs; and (4) maintain a list of states with state 
     long-term care insurance partnerships.
       In providing information to consumers on long-term care, 
     the National Clearinghouse for Long-Term Care Information 
     shall not advocate in favor of a specific long-term care 
     insurance provider or a specific long-term care insurance 
     policy.
       Out of any funds in the Treasury not otherwise 
     appropriated, there is appropriated to carry out for the 
     National Clearinghouse for Long-Term Care $3 million for each 
     of fiscal years 2006 through 2010.
     Expanded Access to Borne and Community-based Services for the 
         Elderly and Disabled (Section 6022 of the Conference 
         Agreement, no provision in the Senate Bill, and Section 
         3131 of the House Bill)
     Current law
       Medicaid home and community-based service (HCBS) waivers 
     authorized by Section 1915(c) of the Social Security Act 
     allow states to provide home and community-based services to 
     Medicaid beneficiaries who would otherwise need the level of 
     care provided in a nursing facility, intermediate care 
     facility for persons with mental retardation (ICF-MR) or 
     hospital. HCBS waiver services can include case management, 
     homemaker/home health aide services, personal care, 
     psychosocial rehabilitation, home health, private duty 
     nursing, adult day care, habilitation, respite care, day 
     treatment, and any other service requested by the state and 
     approved by the Secretary. As part of the waiver, states may 
     define the services that will be offered, target a specific 
     population (e.g., individuals with developmental 
     disabilities) or a specific geographic region, and limit the 
     number of waiver participants (resulting in a waiting list 
     for services in many states).
       Approval for a HCBS waiver is contingent on a state 
     documenting the cost-neutrality of the waiver. Cost-
     neutrality is met if, on average, the per person cost under 
     the HCBS waiver is no higher than the cost if the person were 
     residing in one of the three types of institutions identified 
     in Medicaid law, (hospital, nursing facility or ICF-MR). The 
     state determines which type of institution(s) it will use to 
     make the cost-neutrality calculation.
       A HCBS waiver is generally approved for a 3- or 5-year time 
     period and is subject to additional oversight from the 
     Centers for Medicare and Medicaid Services (CMS). In July 
     2003, there were 275 HCBS waivers nationwide in all states 
     (except Arizona which offers HCBS services under a Section 
     1115 waiver).
     Senate Bill
       No provision.
     House Bill
       The House bill would allow states to cover a broad range of 
     home and community-based services (HCBS) as an optional 
     benefit under the state Medicaid plan without requiring a 
     waiver. States would be able to define which HCBS services 
     will be covered and could include any service authorized by 
     federal law for existing HCBS waiver programs (as defined in 
     Section 1915(c)(4)(B) of the Social Security Act). Similar to 
     the existing HCBS waiver program, paying for an individual's 
     room and board would not be permitted under this new benefit.
       To qualify for this benefit the individual must meet the 
     following criteria: (1) Age 65 or older or disabled (as 
     defined under the Medicaid state plan) but who is not an 
     individual with a developmental disability, mental 
     retardation or a related condition; (2) have had a 
     determination that, but for the provision of such services, 
     the individual would require the level of care provided in a 
     hospital or nursing facility (the cost of which could be 
     reimbursed under Medicaid); and (3) meet the Medicaid 
     eligibility standards in effect in the state (which may 
     include an approved Medicaid waiver) as of the date of 
     enactment of this provision.
       A state would be able to cover this benefit under the 
     Medicaid state plan if certain conditions are met: (1) Any 
     state waiver or demonstration under Sections 1915 or 1115 of 
     the Social Security Act with respect to such services for 
     individuals described in this provision must have expired; 
     and (2) the state must monitor and report to the Secretary of 
     the Department of Health and Human Services (DHHS) on a 
     quarterly basis the enrollment and expenditures for services 
     provided under this option.
       A state would not be required to comply with existing 
     Medicaid requirements regarding the statewide availability of 
     the service, the comparability of services, and the income 
     and resource rules applicable in the community. A state may 
     also limit the number of individuals who are eligible for 
     services, establish waiting lists for the receipt of these 
     services, and limit the amount, duration, and scope of 
     services.
       This section would be effective for home and community-
     based services furnished on or after October 1, 2006.
     Conference Agreement
       The conference agreement establishes home and community-
     based services as an optional Medicaid benefit that would not 
     require a waiver and that meets certain other requirements 
     for individuals whose income does not exceed 150% of the 
     federal poverty level. The scope of services may include any 
     services pennitted under Section 1915(c)(4)(B) of the Social 
     Security Act which the Secretary has the authority to 
     approve, and would not include an individual's room and 
     board. The state may provide this option to individuals 
     without determining that but for the provision of such 
     services, the person would require the level of care provided 
     in a hospital, nursing home, or ICF-MR.
       States are required to establish needs-based criteria for 
     determining an individual's eligibility for the HCBS option 
     established by this provision, and the specific HCBS the 
     individual will receive. The State must also establish needs-
     based criteria for determining whether an individual requires 
     the level of care provided in a hospital, nursing home, ICF-
     MR, or under a waiver of the state plan, that is more 
     stringent than the needs-based criteria for the HCBS option 
     established by this provision.
       The state is also required to submit to the Secretary a 
     projection of the number of individuals to be served under 
     the option, and may limit the number of individuals who are 
     eligible for such services.
       The needs-based criteria must be based on an assessment of 
     an individual's support needs and capabilities, and may take 
     into account the inability of the individual to perform two 
     or more activities of daily living (ADLs) as defined in the 
     Internal Revenue Service (IRS) code (i.e., bathing, dressing, 
     transferring, toileting, eating, and continence), or the need 
     for significant assistance to perform these activities, and 
     other risk factors determined to be appropriate by the state.
       A state is allowed to modify the needs-based criteria 
     described above in the event that enrollment of individuals 
     for the HCBS option exceeds projected enrollment. The state 
     is not required to seek prior approval of the Secretary if 
     the state wishes to modify the needs-based criteria, but must 
     give the Secretary and the public at least 60 days notice of 
     the proposed modification. If a state modifies the needs-
     based criteria, existing recipients of the HCBS optional 
     state plan services will continue to be eligible to receive 
     those services for at least 12 months beginning on the date 
     the individual first received medical assistance for HCBS 
     services. After such a modification, the state, at a minimum, 
     must apply the level of care determination for hospitals, 
     nursing facilities, and ICF-MRs that were in effect prior to 
     the application of more stringent criteria.
       The state is required to use an independent evaluation for 
     determining an individual's eligibility for HCBS. The 
     independent evaluation must include an assessment of the 
     needs of the individual to: (1) determine a necessary level 
     of services and supports consistent with the individual's 
     physical and mental capacity; (2) prevent unnecessary or 
     inappropriate care, and (3) establish an individualized care 
     plan for the individual.
       The assessment must include: (1) an objective evaluation of 
     an individual's inability or need for significant assistance 
     to perform two or more activities of daily living as defined 
     in the Internal Revenue Service code; (2) a face-to-face 
     evaluation of the individual by an individual trained in the 
     assessment and evaluation of individuals whose physical or 
     mental conditions trigger a potential need for HCBS; (3) 
     where appropriate, consultation with the individual's family, 
     spouse, guardian, or other responsible individual; (4) 
     consultation with all treating and consulting health and 
     support professionals caring for the individual; (5) an 
     examination of the individual's relevant history and medical 
     records, and care and support needs guided by best practices 
     and research on effective strategies that result in improved 
     health and quality of life outcomes. The assessment must also 
     evaluate the ability of the individual or individual's 
     representative to self-direct the purchase and control of 
     HCBS if he/she elects this option, and if such an option is 
     covered by the state.
       The independent evaluation is to establish a written 
     individualized plan of care. The plan must be developed in 
     consultation with the individual, the individual's treating 
     physician, health care or support professionals, or other 
     appropriate individuals, and the family caregiver or 
     individual representative if appropriate; (2) to take into 
     account the extent, and the need for, any family or other 
     supports for the individual; (3) to identify the HCBS 
     services to be provided (or purchase, if the individual 
     elects to self-direct

[[Page H12718]]

     his/her care); (4) to be reviewed at least annually or as 
     needed when there is a significant change in circumstances.
       States may allow individual (or the individual's 
     representative) to elect to self-direct the purchase and 
     control of state plan HCBS. Under the self-directed option, 
     the individual's needs, preferences, and capabilities are 
     assessed, and based on the assessment, a service plan 
     is developed jointly with the individual (or 
     representative) that is approved by the state. The service 
     plan must include certain activities such as a person-
     centered planning process and risk management techniques. 
     States may also include an individualized budget that 
     identifies a dollar value for the services and supports 
     under the control and direction of the individual or his 
     or her representative. States are required to provide 
     information in the state plan amendment about how an 
     individualized budget is developed and implemented.
       The state must ensure that the provision of home and 
     community-based services meets federal and state guidelines 
     for quality assurance. The state must establish standards for 
     the conduct of the independent evaluation to prevent 
     conflicts of interest, and must allow for at least annual 
     redetermination of eligibility and appeals using the process 
     for appeals under the State Plan.
       States may elect to provide for a period of presumptive 
     eligibility (not to exceed 60 days) for individuals that the 
     state has reason to believe may be eligible for home and 
     community-based services. The covered activities include 
     carrying out the independent evaluation and assessment and, 
     if eligible, the specific services the individual will 
     receive.
       In covering this benefit, a state may elect not to comply 
     with existing Medicaid requirements related to statewideness 
     and the income and resource rules applicable in the 
     community, but only for purposes of providing home and 
     community-based services in accordance with this benefit. 
     This option should not be construed as applying to those 
     receiving Medicaid in an institution as a result of a 
     determination that the individual requires the level of care 
     in a hospital, nursing facility or ICF/MR.
       Federal Medicaid funding will continue to be available for 
     individuals who are receiving Medicaid in an institution or 
     home and community-based setting (under a HCBS waiver program 
     or Section 1115 demonstration) as of the effective date of 
     the Medicaid state plan amendment, without regard to whether 
     the individuals satisfy the more stringent eligibility 
     criteria established under that paragraph until the 
     individual is discharged from the institution or waiver 
     program, or no longer requires such level of care.
       The provision requires the Secretary acting through the 
     Director of the Agency for Healthcare Research and Quality, 
     to consult with consumers and health and social service 
     providers and other professionals knowledgeable about long-
     term care services and supports to develop program 
     performance indicators, client function indicators, and 
     measures of client satisfaction regarding HCBS offered under 
     Medicaid.
       The Secretary is required to use the indicators and 
     measures to assess HCBS and outcomes, particularly with 
     respect to a recipient's health and welfare, and the overall 
     system for RCBS under Medicaid. The Secretary is also 
     required to make best practices and comparative analyses of 
     system features available to the public.
       This provision will be effective on January 1, 2007.
     Optional Choice of Self-directed Personal Assistance Services 
         (Cash and Counseling) (Section 6023 of the Conference 
         Agreement, and no provision in the Senate Bill, and 
         Section 3132 of the House Bill)
     Current law
       Under current law, state Medicaid programs offer several 
     types of long-term care services to individuals who, because 
     of disability or chronic illness, need assistance with 
     activities such as eating, bathing, and dressing. Medicaid 
     programs have the option of covering personal care services 
     and may also cover a broad set of other services through a 
     home and community-based services (HCBS) waiver authorized 
     under Section 1915(c) of the Social Security Act. To qualify 
     for a HCBS waiver, the individual must require the level of 
     care of a hospital, nursing facility or intermediate care 
     facility for persons with mental retardation (ICF/MR).
       Traditionally, Medicaid personal care and other related 
     services have been provided to individuals through local 
     public or private agencies. However, in the last decade, 
     Medicaid beneficiaries with disabilities or chronic 
     conditions and federal and state policymakers have been 
     increasing the discretion that beneficiaries have over key 
     elements of the service (e.g., what time a personal care 
     worker comes to the home to help the beneficiary, who 
     provides the service, etc.) These types of programs are 
     broadly known as ``self-directed'' or ``consumer-directed'' 
     programs. The specific elements that a Medicaid beneficiary 
     can control vary widely depending upon the state and the type 
     of service covered. Currently, Medicaid law allows certain 
     types of self directed programs to be implemented through the 
     normal Medicaid state plan and HCBS waiver process. Other 
     types of self-directed programs require a research and 
     demonstration waiver under Section 1115 of the Social 
     Security Act.
       Under the Medicaid personal care benefit, the Centers for 
     Medicare and Medicaid Services (CMS) explicitly permits self-
     direction of personal care services. The CMS State Medicaid 
     Manual specifies, ``Medicaid beneficiaries may hire their own 
     provider, train the provider according to their personal 
     preferences, supervise and direct the provision of the 
     personal care services and, if necessary, fire the 
     provider.'' However, the state Medicaid agency maintains 
     responsibility for monitoring service delivery and ensuring 
     that qualified providers are delivering the personal care 
     services. The state is not permitted to provide Medicaid 
     funds directly to a consumer to pay for the personal care 
     services.
       Generally, CMS policy has been that payments for personal 
     care (or similar) services delivered by legally responsible 
     individuals (e.g., the parent of a minor child or a spouse) 
     are not eligible for federal Medicaid matching funds. 
     However, CMS has recently amended its policy so that under a 
     HCBS waiver (though not the Medicaid personal care benefit), 
     states have the option of paying legally responsible 
     relatives in extraordinary circumstances when the provision 
     of personal care services is determined to be necessary to 
     ensure the health and welfare of the waiver participant and 
     so long as the parent or spouse meets the Medicaid provider 
     requirements established by the state.
     Senate Bill
       No provision.
     House Bill
       This proposal would aIlow a state to cover, under the 
     Medicaid program, payment for part or all of the cost of 
     self-directed personal assistance services (other than room 
     and board) based on a written plan of care to individuals for 
     whom there has been a determination that, but for the 
     provision of such services, the individuals would require and 
     receive personal care services under Medicaid state plan or 
     home and community-based services under a HCBS waiver. Self-
     directed personal assistance services may not be provided to 
     individuals who reside in a home or property that is owned, 
     operated, or controlled by a provider of services, not 
     related by blood or marriage.
       The Secretary must not approve a state's self-directed 
     personal assistance services program unless the state assures 
     that the necessary safeguards have been taken to protect the 
     health and welfare of individuals receiving these services 
     and that financial accountability exists for funds expended 
     for these services.
       The state must also evaluate the need for personal care 
     under the Medicaid state plan or personal services under a 
     HCBS waiver for individuals who (1) are entitled to Medicaid 
     personal care under the state plan or receive HCBS waiver 
     services; (2) may require self-directed personal assistance 
     services; and (3) may be eligible for self-directed personal 
     assistance services. If covered by the state and at the 
     choice of the individual, those who are likely to require 
     personal care or HCBS waiver services must be informed of the 
     feasible alternatives in the provision of Medicaid personal 
     care services or personal assistance services under a HCBS 
     waiver. The state must also provide a support system that 
     ensures participants in the program are appropriately 
     assessed and counseled prior to enrollment and are able to 
     manage their budgets. Additional counseling and management 
     support may be provided at the request of the participant.
       The state will be required to submit an annual report to 
     the Secretary which includes the number of individuals served 
     and total expenditures on their behalf, in the aggregate. The 
     state must also provide an evaluation of overall impact on 
     the health and welfare of participants compared to non-
     participants every three years.
       A state may provide self-directed personal assistance 
     services under the state plan without regard to the Medicaid 
     requirements for statewideness (under Section 1902(a)(1) of 
     the Social Security Act), and may limit the population 
     eligible to receive these services and the number of persons 
     served without regard to Medicaid requirements regarding 
     comparability (Section 1902(a)(10)(B) of the Social Security 
     Act).
       Under this provision, the term ``self-directed personal 
     assistance services'' means personal care and related 
     services, or HCBS waiver services that are provided to an 
     eligible participant. Individuals participating in such 
     services will be permitted, within an approved self-directed 
     services plan and budget, to purchase personal assistance and 
     related services, and hire, fire, supervise, and manage the 
     individuals providing such services.
       At the election of the state, a participant will be allowed 
     to (1) choose as a paid service provider, any individual 
     capable of providing the assigned tasks including legally 
     liable relatives, and (2) use the individualized budget to 
     acquire items that increase independence or substitute (such 
     as a microwave oven or an accessibility ramp) for human 
     assistance, to the extent that expenditures would otherwise 
     be made for the human assistance.
       An approved self-directed services plan and budget under 
     this provision must meet the following requirements: (1) The 
     participant (or his/her guardian or authorized representative 
     if appropriate) exercises choice and control over the budget, 
     planning, and purchase of self-directed personal assistance 
     services, including the amount, duration, scope, provider and 
     location of service provision; (2) There is an assessment of 
     the needs,

[[Page H12719]]

     strengths, and preferences of the participants for such 
     service; (3) An individual's plan for self-directed services 
     and supports, which has been developed and approved by the 
     state, is based on a person-centered assessment process that 
     builds upon the participant's capacity to engage in 
     activities that promote community life; respects the 
     participant's preferences, choices and abilities; and 
     involves families, and professionals in the planning or 
     delivery of services or supports as desired or required by 
     the participant.
       The budget for self-directed services and supports must be 
     developed and approved by the state based on the assessment 
     and plan (described above), and on a methodology that uses 
     valid,reliable cost data, is open to public inspection, and 
     includes a calculation of the expected cost of such services 
     if those services were not self-directed. The budget may not 
     restrict access to other medically necessary care and 
     services furnished under the plan and approved by the state 
     but not included in the budget
       In establishing and implementing the self-directed services 
     plan and budget, appropriate quality assurance and risk 
     management techniques must be used which recognize the roles 
     and sharing of responsibilities in obtaining services in a 
     self-directed manner and which assure the appropriateness of 
     the plan and the budget, based on the individual's resources 
     and capabilities.
       A state may employ a financial management entity to make 
     payments to providers, track costs, and make reports under 
     this program. Payment for the activities of the financial 
     management entity will be reimbursed at the same rate as 
     other Medicaid administrative activities (generally federal 
     Medicaid administrative reimbursement is 50%, though certain 
     activities may be eligible for 75% reimbursement).
       This provision win apply to apply to services furnished on 
     or after January 1, 2006.
     Conference Agreement
       The conference agreement follows the House provision except 
     that the effective date has been changed to January 1, 2007.
     Authority to continue providing certain adult day health care 
         services or medical adult day care services (No provision 
         in Conference Agreement, Section 6039B of Senate Bill, 
         and no provision in the House Bill)
     Current Law
       Most states currently offer adult day care services to 
     Medicaid beneficiaries through either the rehabilitation or 
     clinic benefits of the Medicaid state plan (in about 8 
     states), or through a home and community-based (HCBS) waiver 
     under Section 1915(c) of Medicaid law (in about 44 states 
     through 102 separate HCBS programs).
     Senate Bill
       The Senate bill would prohibit the Secretary of HHS from 
     denying federal Medicaid funding or withdrawing federal 
     approval for adult day health care services or medical adult 
     day care services under the Medicaid state plan, as defined 
     by the state and approved by the Secretary on or before 1982.
     House Bill
       No provision.
     Conference Agreement
       No provision.

       Chapter 3--Eliminating Fraud, Waste, and Abuse in Medicaid

     Limitation on Use of Contingency Fee Arrangements (Section 
         6031 of the Conference Agreement, Section 6022 of the 
         Senate Bill, and no provision in the House Bill)
     Current Law
       Federal law requires each state to designate a single state 
     agency to administer or supervise the administration of its 
     Medicaid program. This agency, which is usually part of a 
     welfare, health, or human resources umbrella agency, will 
     often contract with other public or private entities (e.g., 
     other state agencies or departments, consulting firms) to 
     perform various administrative functions. In some cases, 
     contingency fee arrangements are used to pay contractors 
     based on Medicaid dollars saved, recovered, or otherwise 
     obtained for the state (e.g., a fee equal to 10% of third 
     party liability collections). The federal reimbursement rate 
     for most Medicaid administrative costs is 50%.
       In determining the amount of administrative costs--
     including contingency fees--that may be eligible for federal 
     reimbursement, states must comply with a number of federal 
     statutes and regulations. In general, federal Medicaid law 
     requires states to use methods of administration that are 
     found by the Secretary of HHS to be necessary for the proper 
     and efficient operation of their Medicaid programs. With 
     regard to contingency fee contracts, guidance issued by the 
     Centers for Medicare and Medicaid Services (CMS) to its 
     regional offices in 2002 notes that in order to be eligible 
     for federal reimbursement, contingency fees must: (1) be 
     based on Medicaid cost avoidance savings or recoveries in 
     which the federal government shares, (2) be intended to 
     produce Medicaid program savings, not additional expenditures 
     reported for federal reimbursement, and (3) not be contingent 
     upon recoveries from the federal government. CMS guidance 
     also notes that states may not claim federal reimbursement 
     for contingency fee payments made to another government unit 
     for Medicaid administrative activities.
       Additional federal guidance is contained in Office of 
     Management Budget (OMB) Circular A-87, which establishes 
     principles and standards for determining allowable costs for 
     states (and other governmental units) under federal grant 
     programs such as Medicaid. The circular specifies that the 
     cost of professional and consultant services are allowable 
     when reasonable in relation to the services rendered and when 
     not contingent upon recovery of the costs from the federal 
     government.
     Senate Bill
       Under the Senate bill, states would not be eligible for 
     federal reimbursement of amounts expended in connection with 
     a contract or agreement (other than a Medicaid managed care 
     contract) between the state Medicaid agency (or any state or 
     local agency that administers a portion of the Medicaid 
     program) and a consultant or other contractor if the terms of 
     compensation for the consultant or other contractor do not 
     meet standards established by the Inspector General (IG) of 
     HHS.
       Such standards would be designed by the IG to ensure 
     prudent purchasing and program integrity with respect to 
     federal funds. The IG would annually review the standards and 
     revise them as necessary to promptly address new compensation 
     arrangements that may present a risk to Medicaid program 
     integrity. The standards would be issued no later than six 
     months after enactment of the provision.
       The provision would be effective January 1, 2007, except 
     that in the case of a state which the Secretary of HHS 
     determines that state legislation is required for compliance, 
     the state would not be regarded as failing to comply solely 
     on the basis of its failure to meet the 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 enactment of the 
     bill.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement follows the House bill.
     Encouraging the Enactment of State False Claims Acts (Section 
         6032 of the Conference Agreement, Section 6023 of the 
         Senate Bill, and no provision in the House Bill)
     Current Law
       Under the federal False Claims Act, anyone who knowingly 
     submits a false claim to the federal government is liable for 
     damages up to three times the amount of the government's 
     damages plus mandatory penalties of $5,500 to $11,000 for 
     each false claim submitted. Under qui tam (whistleblower) 
     provisions of the act, private citizens with knowledge of 
     potential violations (``relators'') may file suit on behalf 
     of the government and are entitled to receive a share of the 
     proceeds of the action or settlement of the claim (ranging 
     from 15% to 30%, depending on whether or not the government 
     elects to participate in the case).
       States may have a variety of laws in place to facilitate 
     prosecution of Medicaid fraud, and some have established 
     their own versions of a false claims act. With limited 
     exceptions, a state must repay the federal share (generally 
     determined by the federal medical assistance percentage, or 
     FMAP) of any provider overpayment within 60 days of 
     discovering the overpayment, regardless of whether or not the 
     state has recovered the overpayment.
     Senate Bill
       Under the Senate bill, if a state has in effect a law 
     relating to false or fraudulent claims that meets certain 
     requirements (described below), the federal medical 
     assistance percentage, with respect to any amounts recovered 
     under a state action brought under such a law, would be 
     decreased by 10 percentage points.
       The state law relating to false and fraudulent claims must 
     be determined by the Inspector General of HHS, in 
     consultation with the Attorney General, to: (1) establish 
     liability to the state for false or fraudulent claims 
     described in the federal False Claims Act, with respect to 
     Medicaid expenditures, (2) contain provisions that are at 
     least as effective in rewarding and facilitating qui tam 
     actions as those in the federal False Claims Act, (3) 
     contain a requirement for filing an action under seal for 
     60 days with review by the state Attorney General, (4) 
     contain a civil penalty that is not less than the amount 
     authorized by the federal False Claims Act, (5) contain 
     provisions that are designed to prevent a windfall 
     recovery for a qui tam relator that files a federal and 
     state action for the same false or fraudulent claim.
       The provision would be effective January 1, 2007.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement follows the Senate bill, but 
     excludes language regarding windfall recoveries for qui tam 
     relators.
     Employee Education About False Claims Recovery (Section 6033 
         of the Conference Agreement, Section 6024 of the Senate 
         Bill, and no provision in the House Bill).
     Current Law
       No provision.
     Senate Bill
       Under the Senate bill, a state would be required to provide 
     that any entity that receives annual Medicaid payments of at 
     least $1 million, as a condition of receiving such payments, 
     must: (1) establish written policies, procedures, and 
     protocols for training

[[Page H12720]]

     of all employees of the entity, and of any contractor or 
     agent of the entity, that includes a detailed discussion of 
     the federal False Claims Act, federal administrative remedies 
     for false claims and statements, any state laws pertaining to 
     civil or criminal penalties for false claims and statements, 
     and whistleblower protections under such laws, with respect 
     to the role of such laws in preventing and detecting fraud, 
     waste, and abuse in federal health care programs, (2) include 
     in such written materials detailed provisions and training 
     regarding the entity's policies and procedures for detecting 
     and preventing fraud, waste, and abuse, (3) include in any 
     employee handbook for the entity a specific discussion of 
     such laws, the rights of employees to be protected as 
     whistleblowers, and the entity's policies and procedures for 
     detecting and preventing fraud, waste, and abuse, and (4) 
     require mandatory training for all employees of the entity 
     and of any contractor or agent of the entity, at the time of 
     hiring, with respect to such laws and the entity's policies 
     and procedures for detecting fraud, waste, and abuse.
       The provision would be effective January 1, 2007, except 
     that in the case of a state which the Secretary of HHS 
     determines that state legislation is required for compliance, 
     the state would not be regarded as failing to comply solely 
     on the basis of its failure to meet the 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 enactment of the 
     bill.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement follows the Senate bill, but 
     applies only to entities receiving annual Medicaid payments 
     of at least $5 million and does not require the establishment 
     of protocols and procedures for training of employees (i.e., 
     only written policies are required).
     Prohibition on Restocking and Double Billing of Prescription 
         Drugs (Section 6034 of the Conference Agreement, and 
         Section 6025 of the Senate Bill, and no provision in the 
         House Bill)
     Current Law
       No provision.
     Senate Bill
       The Senate bill would prohibit federal matching payments 
     for the ingredient cost of a covered outpatient drug for 
     which the pharmacy has already received payment (other than a 
     reasonable re-stocking fee). It would become effective on the 
     first day of the first fiscal quarter beginning after 
     enactment.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate provision.
     Medicaid Integrity Program (Section 6035 of the Conference 
         Agreement, Section 6026 of the Senate Bill, and no 
         provision in the House Bill)
     Current Law
       States and the federal government share in the 
     responsibility for safeguarding Medicaid program integrity. 
     States must comply with federal requirements designed to 
     ensure that Medicaid funds are properly spent (or recovered, 
     when necessary). The Centers for Medicare and Medicaid 
     Services (CMS) is the primary federal agency responsible for 
     providing oversight of states' activities and faci1itating 
     their program integrity efforts. The HHS Office of Inspector 
     General (GIG) also plays a role in Medicaid fraud and abuse 
     detection and prevention efforts through its investigations, 
     audits, evaluations, issuances of program recommendations, 
     and other activities.
       As part of its program integrity activities, CMS operates a 
     Medicare-Medicaid (MediMedi) data match project that analyzes 
     claims data from both programs together to detect aberrant 
     patterns that may not be evident when billings are viewed in 
     isolation (e.g., providers submitting claims to both programs 
     for procedures that add up to more than 24 hours of patient 
     care in a single day). The Medi-Medi project began with one 
     state in 2001, and was subsequently expanded to include eight 
     others. It is primarily supported by ``wedge'' funds from the 
     Health Care Fraud and Abuse Control (HCFAC) account within 
     the federal Hospital Insurance (Medicare Part A) trust fund. 
     HCFAC wedge funds are divided between the Department of 
     Justice, the HHS Office of Inspector General, CMS, and other 
     HHS agencies. The HCFAC account also funds the Medicare 
     Integrity Program and activities of the Federal Bureau of 
     Investigation related to health care fraud. Annual minimum 
     and maximum HCFAC appropriations are specified in statute.
     Senate Bill
       The Senate bill would establish a Medicaid Integrity 
     Program under title XIX. The Secretary of HHS would enter 
     into contracts with eligible entities to carry out the 
     program's activities, which would include: (1) review of the 
     actions of individuals or entities furnishing items or 
     services for which a Medicaid payment may be made, (2) audit 
     of claims for payment for items or services furnished or for 
     administrative services rendered, (3) identification and 
     recovery of overpayments to individuals or entities receiving 
     federal funds under Medicaid, (4) education of service 
     providers, managed care entities, beneficiaries, and other 
     individuals with respect to payment integrity and benefit 
     quality assurance issues.
       An entity would be eligible to enter into a contract to 
     carry out Medicaid Integrity Program activities if it meets 
     eligibility and contracting requirements similar to those 
     under the Medicare Integrity Program. Beginning in FY2006 and 
     every five years, the Secretary of HHS--in consultation with 
     the Attorney General, the Director of the Federal Bureau of 
     Investigation, the Comptroller General of the United States, 
     the Inspector General of HHS, and state officials with 
     responsibility for controlling provider fraud and abuse under 
     Medicaid--would establish a comprehensive plan for ensuring 
     Medicaid program integrity by combating fraud, waste, and 
     abuse.
       Appropriations for the Medicaid Integrity Program would 
     total $50 million in FY2006, $49 million in each of FY2007 
     and FY2008, $74 million in each of FY2009 and FY2010, and $75 
     million in FY2011 and each fiscal year thereafter. No later 
     than 180 days after the end of each fiscal year (beginning 
     with FY2006), the Secretary of HHS would submit a report to 
     Congress that identifies the use and effectiveness of the use 
     of such funds.
       A Medicaid Chief Financial Officer (CFO) and Medicaid 
     Program Integrity Oversight Board would also be established 
     under title XIX. The Medicaid CFO would be appointed by and 
     would report directly to the Administrator of CMS. The duties 
     and authority of the Medicaid CFO would be comparable to 
     those of other CFOs with respect to the management and 
     expenditure of federal funds under federal health care 
     programs. A Medicaid Program Integrity Oversight Board would 
     also be established by the Secretary of HHS. The duties and 
     authority of the board would be comparable to those of the 
     Medicare Contractor Oversight Board, and would include 
     responsibility for identifying vulnerabilities and developing 
     strategies for minimizing integrity risks to state Medicaid 
     programs.
       States would be required to comply with any requirements 
     determined by the Secretary of HHS to be necessary for 
     carrying out the Medicaid Integrity Program, or the duties of 
     the Medicaid CFO and the Medicaid Program Integrity Oversight 
     Board.
       In each of fiscal years 2006 through 2010, $25 million 
     would be appropriated for Medicaid activities of the HHS 
     Office of Inspector General (in addition to any other amounts 
     appropriated or made available for its Medicaid activities, 
     to remain available until expended). No later than 180 days 
     after the end of each fiscal year (beginning with FY2006), 
     the Inspector General of HHS would submit a report to 
     Congress that identifies the use and effectiveness of the use 
     of such funds.
       The Secretary of HHS would significantly increase the 
     number of full-time equivalent CMS employees whose duties 
     consist solely of ensuring the integrity of the Medicaid 
     program.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement generally follows the Senate bill, 
     but excludes recovery of overpayments from the list of 
     Medicaid Integrity Program activities and does not establish 
     a Medicaid CFO or oversight board. It appropriates $5 million 
     in FY2006, $50 million in each of FY2007 and FY2008, and $75 
     million in each fiscal year thereafter for Medicaid Integrity 
     Program activities.
       The conference agreement also establishes a national 
     expansion of the Medicare-Medicaid data match project 
     (referred to as the Medi-Medi Program) as a required activity 
     of the Medicare Integrity Program under Title XVIII of the 
     Social Security Act. The Secretary of HHS shall enter into 
     contracts with eligible entities to ensure that the Medi-Medi 
     Program is conducted for the purpose of: (1) identifying 
     program vulnerabilities in Medicare and Medicaid through the 
     use of computer algorithms to look for payment anomalies, (2) 
     working with states, the Attorney General, and the Inspector 
     General of HHS to coordinate appropriate actions to protect 
     Medicare and Medicaid expenditures, and (3) increasing the 
     effectiveness and efficiency of both programs through cost 
     avoidance, savings, and recoupment of fraudulent, wasteful, 
     or abuse expenditures. At least quarterly, the Secretary 
     shall make available in a timely manner any data and 
     statistical information collected by the Medi-Medi Program to 
     the Attorney General, the Director of the Federal Bureau of 
     Investigation, the Inspector General of HHS, and the states.
       In addition to HCFAC appropriations for the Medicare 
     Integrity Program (which have a statutory floor and ceiling), 
     the Medi-Medi Program would receive $12 million in FY2006, 
     $24 million in FY2007, $36 million in FY2008, $48 million in 
     FY2009, and $60 million in FY2010 and each fiscal year 
     thereafter.
     Enhancing Third Party Identification and Payment (Section 
         6036 of the Conference Agreement, Section 6021 of the 
         Senate Bill, and Section 3144 of the House Bill)
     Current Law
       Third-party liability (TPL) refers to the legal obligation 
     of third parties--individuals, entities, or programs--to pay 
     all or part of the expenditures for medical assistance 
     furnished under a Medicaid state plan. In general, federal 
     law requires Medicaid to be the payor of last resort, meaning 
     that all other

[[Page H12721]]

     available third parties must meet their legal obligation to 
     pay claims before the Medicaid program pays for the care of 
     an individual. Examples of third parties which may be liable 
     to pay for services inc1ude employment-related health 
     insurance, court-ordered medical support (inc1uding health 
     insurance) from noncustodial parents, workers' compensation, 
     long-term care insurance, and other state and federal 
     programs (with certain exceptions, such as the Indian Health 
     Service).
       States are required to take all reasonable measures to 
     ascertain the legal liability of third parties to pay for 
     care and services available under the state Medicaid plan. To 
     this end, they must: (1) collect health insurance information 
     from individuals at the time of initial application for 
     Medicaid and during any subsequent redeterminations of 
     eligibility, (2) match data provided by Medicaid applicants 
     and recipients to certain files maintained by government 
     agencies (e.g., state wage and income, Social Security 
     Administration wage and earnings, state workers' 
     compensation, state motor vehic1e accident reports), (3) 
     identify c1aims with diagnosis codes that would indicate 
     trauma-related injury for which a third party may be liable 
     for payment, and (4) follow up on TPL leads identified 
     through these information-gathering activities.
       If the state has determined that probable third party 
     liability exists at the time a claim for reimbursement is 
     filed, it generally must reject the claim and return it to 
     the provider for a determination of the amount of third party 
     liability (referred to as ``cost avoidance''). If probable 
     liability has not been established or the third party is not 
     available to pay the individual's medical expenses, the state 
     must pay the claim and then attempt to recover the amount 
     paid (referred to as ``pay and chase''). States are generally 
     required to cost avoid claims unless they have an approved 
     waiver that allows them to use the pay and chase method.
       As a condition of eligibility for Medicaid, individuals are 
     required to assign to the state Medicaid agency their rights 
     to medical support and payment for medical care from any 
     third party. This assignment of rights facilitates TPL 
     recovery by allowing the state to collect, on behalf of 
     Medicaid enrollees, amounts owed by third parties for claims 
     paid by Medicaid.
     Senate Bill
       The Senate bill would amend the list of third parties named 
     in Section 1902(a)(25) of the Social Security Act for which 
     states must take all reasonable measures to ascertain the 
     legal liability to include: (1) self-insured plans, (2) 
     pharmacy benefit managers, and (3) other parties that are 
     legally responsible (by statute, contract, or agreement) for 
     payment of a claim for a health care item or service. It 
     would also amend that section to include these entities in 
     the list of health insurers that states must prohibit from 
     taking an individual's Medicaid status into account when 
     enrolling the individual or making payments for benefits to 
     or on behalf of the individual.
       In addition, it would require a state to provide assurances 
     satisfactory to the Secretary of HHS that it has laws in 
     effect requiring health insurers (including parties that are 
     legally responsible for payment of a claim for a health care 
     item or service), as a condition of doing business in the 
     state, to: (1) provide, upon request of the state, 
     eligibility and claims payment data with respect to 
     individuals who are eligible for or receiving Medicaid, (2) 
     accept an individual's or other entity's assignment of rights 
     (i.e., rights to payment from the parties) to the state, (3) 
     respond to any inquiry from the state regarding a claim for 
     payment for any health care item or service submitted not 
     later than three years after the date such item or service 
     was provided, and (4) agree not to deny a claim submitted by 
     the state solely on the basis of the date of submission of 
     the claim.
       The provision would be effective January 1, 2006, except 
     that in the case of a state which the Secretary of HHS 
     determines that state legislation is required for compliance, 
     the state would not be regarded as failing to comply solely 
     on the basis of its failure to meet the 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 enactment of the 
     bill.
     House Bill
       The House bill is similar to the Senate bill.
     Conference Agreement
       The conference agreement generally follows the Senate and 
     House bills, but substitutes the term ``managed care 
     organization'' for ``health maintenance organization'' in 
     Section 1902(a)(25) of the Social Security Act and specifies 
     that states must require parties legally responsible for 
     payment of a claim to provide, upon request of the state, 
     information to determine during what period an individual or 
     their spouses and dependents may be (or may have been) 
     covered by a health insurer and the nature of the coverage 
     that is or was provided by the health insurer (including the 
     name, address, and identifying number of the plan) in a 
     manner prescribed by the Secretary of HHS.

          Chapter 4--Flexibility in Cost Sharing and Benefits

     State Option for Alternative Medicaid Premiums and Cost 
         Sharing (Section 6041 of the Conference Agreement, no 
         provision in the Senate Bill, and Sections 3121 and 3126 
         of the House Bill)
     Current Law
       With some exceptions, premiums and enrollment fees are 
     generally prohibited under Medicaid. When applicab1e, nominal 
     amounts for such charges are between $1 and $19 depending on 
     family income. States are allowed to establish nominal 
     service-related cost-sharing requirements that are generally 
     between $0.50 and $3, depending on the cost of the service 
     provided. The regulations that specify nominal premium and 
     service-related cost-sharing amounts were published and 
     amended in the late 1970s and the early 1980s. These amounts 
     are not adjusted by any factor. Specific services and groups 
     are exempted from such cost-sharing. Waiver authority is 
     required to change these rules.
       Under certain circumstances, families qualifying for 
     transitional Medicaid, pregnant women and infants with income 
     over 150% FPL, medically needy groups, and workers with 
     disabilities may be charged premiums for Medicaid coverage.
       All service-related cost-sharing is prohibited for: (1) 
     children under 18 years of age; (2) pregnant women for any 
     services that relate to the pregnancy or to any other medical 
     condition which may complicate pregnancy; (3) services 
     furnished to individuals who are inpatients in a hospital, or 
     are residing in a long term care facility or in another 
     medical institution if the individual is required to spend 
     most of their income for medical care; (4) services 
     furnished to individuals receiving hospice care; (5) 
     emergency services; and (6) family planning services and 
     supplies. For most other beneficiaries and services, 
     states may impose nominal service-related cost-sharing 
     (described above). For workers with disabilities, service-
     related cost-sharing may be required that exceeds nominal 
     amounts as long as they are set on a sliding scale based 
     on income.
       Under the state Medicaid plan, providers must not deny care 
     or services to Medicaid beneficiaries due to the individual's 
     inability to pay a cost-sharing charge. However, this 
     requirement does not eliminate the beneficiary's liability 
     for payment of such charges. For certain groups of pregnant 
     women and infants for which monthly premiums may be charged, 
     states must not require prepayment and must not terminate 
     Medicaid eligibility for failure to pay such premiums until 
     such failure continues for at least 60 days. States may waive 
     those premiums when such payments would cause undue hardship.
       States may offer Medicaid to certain uninsured women who 
     are under age 65, and are in need of treatment for breast or 
     cervical cancer based on screening services provided by an 
     early detection program run by the CDC. This group has access 
     to the same Medicaid services offered to the categorically 
     needy in a given state, and are subject to Medicaid's nominal 
     cost-sharing rules.
     Senate Bill
       No provision.
     House Bill
       The House Bill would allow states to impose premiums and 
     cost-sharing for any group of individuals for any type of 
     service, through Medicaid state plan amendments (rather than 
     waivers), subject to specific restrictions. Premiums and 
     cost-sharing imposed under this option would be allowed to 
     vary among classes or groups of individuals, or types of 
     service, including through the use of tiered cost-sharing for 
     prescription drugs. Generally, the total amount of annual 
     cost-sharing for all individuals in a family would be capped 
     at 5% of family income for all families regardless of income. 
     Individuals in families with income below 100% FPL would not 
     be subject to premiums but could be subject to nominal 
     service-related cost-sharing. Individuals in families with 
     income exceeding 100% FPL may be subject to premiums and 
     higher than nominal cost-sharing amounts.
       Premiums would not be permitted for: (1) mandatory groups 
     of children under 18, including individuals receiving 
     adoption or foster care assistance under Title IV-E 
     regardless of age; (2) pregnant women; (3) terminally ill 
     persons receiving Medicaid hospice care; (4) individuals in 
     institutions who are required to spend for costs of care all 
     but a minimal amount of their income for personal needs. 
     States may exempt additional groups from premiums. '
       Service related cost-sharing would not be permitted for: 
     (1) services provided to mandatory groups of children under 
     18, including individuals receiving adoption or foster care 
     assistance under Title IV-E regardless of age; (2) preventive 
     services provided to children under 18 regardless of family 
     income; (3) services provided to pregnant women that relate 
     to pregnancy or to other medical conditions that may 
     complicate pregnancy; (4) services provided to individuals 
     receiving Medicaid hospice services; (5) services provided to 
     individuals in institutions who are required to spend for 
     costs of care all but a minimal amount of their income for 
     personal needs; (6) emergency services; and (7) family 
     planning services and supplies. States may exempt additional 
     individuals or services from service-related cost-sharing.
       In applying limits on cost-sharing amounts under this 
     option that states may impose on individuals under 100% FPL, 
     beginning with 2006, the Secretary would be required to 
     increase nominal amounts of service-related cost-sharing by 
     the annual percentage increase in the medical care component 
     of the consumer price index (CPI) for all urban consumers 
     (U.S. city average), as rounded up in an appropriate manner.

[[Page H12722]]

       The bill further specifies that these provisions would not 
     prevent states from further limiting cost-sharing, affect the 
     authority of the Secretary to waive limits on premiums or 
     cost-sharing, nor affect waivers in effect before the date of 
     enactment.
       The bill would allow states to condition the provision of 
     medical assistance on the payment of premiums, and to 
     terminate Medicaid eligibility on the basis of failure to pay 
     a premium if that failure continues for at least 60 days. 
     States may apply this provision to some or all groups of 
     beneficiaries, and may waive premium payments in cases where 
     such payments would be an undue hardship. In addition, the 
     provision would allow states to permit providers 
     participating in Medicaid to require a Medicaid beneficiary 
     to pay authorized cost-sharing as a condition for the 
     provision of care or services. Providers would also be 
     allowed to reduce or waive cost-sharing amounts.
       The Government Accountability Office (GAO) would be 
     required to conduct a study of the impact of premiums and 
     cost-sharing under Medicaid on access to and utilization of 
     services. The report would be required to be submitted to 
     Congress no later than January 1, 2008.
       These provisions would apply to cost-sharing for items and 
     services furnished on or after January 1, 2006. The House 
     bill also specifies that none of the proposed cost-sharing 
     (or benefit) provisions described above would apply to women 
     who qualify for Medicaid under the breast and cervical cancer 
     eligibility group.
     Conference Agreement
       The conference agreement includes the House bill, with 
     modifications. It clarifies that rules with respect to 
     optional cost sharing for prescribed drugs (see below) are 
     separate from the rules for other optional cost sharing. 
     Explicit cost sharing limits for individuals in families with 
     income under 100% FPL are dropped in the conference 
     agreement. For individuals in families with income between 
     100 and 150% FPL: (1) no premiums may be imposed, (2) cost 
     sharing for any item or service cannot exceed 10% of the cost 
     of the item or service, and (3) the total aggregate amount of 
     all cost-sharing (including cost sharing for prescribed drugs 
     and emergency room copayments for non-emergency care; see 
     below) cannot exceed 5% of family income as applied on a 
     quarterly or monthly basis as specified by the state. For 
     individuals in families with income above 150% FPL: (1) the 
     total aggregate amount of all cost sharing (including cost 
     sharing for prescribed drugs and emergency room copayments 
     for non-emergency care) cannot exceed 5% of family income as 
     applied on a quarterly or monthly basis as specified by the 
     state, and (2) cost-sharing for any item or service cannot 
     exceed 20% of the cost of the item or service.
       Two groups are added to the list of those exempt from 
     paying premiums and cost-sharing under the House bill. In the 
     conference agreement, these additional groups include (1) 
     children in foster care who receive aid and assistance under 
     Part B of Title IV (Child and Family Services) of the Social 
     Security Act; and (2) women who qualify for Medicaid under 
     the breast and cervical cancer eligibility group (a technical 
     change from the House bill).
       In addition, the agreement clarifies that providers could 
     reduce or waive cost-sharing on a case-by-case basis.
       Under the conference agreement, increases in the nominal 
     cost-sharing amounts follow the House bill (i.e., annual 
     adjustments using the medical CPI), but apply more broadly to 
     existing cost-sharing provisions in statute (Section 1916) as 
     well as to the new cost-sharing provisions in the House bill 
     specific to prescription drugs and non-emergency care 
     provided in an emergency room (described below).
     Special Rules for Cost Sharing for Prescription Drugs 
         (Section 6042 of the Conference Agreement, no provision 
         in the Senate Bill, and Section 3122 of the House Bill)
     Current Law
       States are allowed to establish nominal service-related 
     cost-sharing requirements (defined in regulation) that are 
     generally between $0.50 and $3, depending on the cost of the 
     service provided. Specific services and groups are exempted 
     from such cost-sharing. Waiver authority is required to 
     change these rules. As with other Medicaid benefits, nominal 
     cost-sharing may be imposed on prescribed drugs, and states 
     may vary nominal cost-sharing amounts for preferred and non-
     preferred drugs. States may also implement prior 
     authorization for prescribed drugs.
     Senate Bill
       No provision.
     House Bill
       The House bill would allow states to impose cost-sharing 
     amounts that exceed the proposed state option limits 
     described above for certain state-identified non-preferred 
     drugs if the cost sharing plan meets the following 
     characteristics. Under this option, states may impose higher 
     cost-sharing amounts for non-preferred drugs within a class; 
     waive or reduce the cost-sharing otherwise applicable for 
     preferred drugs within such class; and must not apply such 
     cost-sharing for preferred drugs to persons exempt from cost-
     sharing (identified above).
       Cost-sharing for non-preferred drugs would be based on 
     multiples of the nominal amounts based on family income. For 
     persons with family income below 100% of FPL, nominal cost 
     sharing would apply. For those with family income at or above 
     100% but below l50% of FPL, the multiple is equal to two 
     times the applicable nominal amount, and for those with 
     income equal to or exceeding 150% of FPL, the multiple is 
     equal to three times the applicable nominal amount. For 
     persons generally exempt from cost-sharing (identified 
     above), cost-sharing for non-preferred drugs may be applied. 
     Such cost-sharing may not exceed nominal amounts, and 
     aggregate caps on cost-sharing (in terms of nominal amounts 
     and maximum cost-sharing based on the specified percentage of 
     family income identified above) would still apply.
       For Medicaid purposes, states would not be allowed to treat 
     a preferred drug under the TRICARE pharmacy benefit program 
     as a non-preferred drug, nor could states impose cost-sharing 
     that exceeds the standards under this program that are in 
     effect on the date of enactment for this provision.
       In cases in which a prescribing physician determines that 
     the preferred drug would not be effective or would have 
     adverse health effects or both, the state may impose the 
     cost-sharing amount for preferred drugs on the prescribed 
     non-preferred product.
       The House bill would not prevent states from excluding 
     specified drugs or classes of drugs from these special cost-
     sharing rules.
       States would be prohibited from implementing these special 
     cost-sharing rules for prescription drugs unless the state 
     has instituted a system for prior authorization and related 
     appeals processes for outpatient prescription drugs.
       These provisions would become effective for cost-sharing 
     imposed for items and services furnished on or after October 
     1, 2006.
     Conference Agreement
       The conference agreement includes the House bill, with 
     modifications. Cost-sharing for non-preferred drugs may not 
     exceed: (1) nominal amounts for individuals in families with 
     income below or equal to 150% FPL, and (2) 20% of the cost of 
     the drug for individuals in families with income above 150% 
     FPL.
       The conference agreement also drops both the TRICARE and 
     the prior authorization/appeals process provisions in the 
     House bill. It also changes the effective date of these 
     provisions to January 1, 2007.
     Emergency Room Copayments for Non-Emergency Care (Section 
         6043 of the Conference Agreement, no provision in the 
         Senate Bill, and Section 3123 of the House Bill)
     Current Law
       Waivers may be used to allow states to impose up to twice 
     the otherwise applicable nominal cost-sharing amounts for 
     non-emergency services provided in a hospital emergency room 
     (ER). States may impose these higher amounts if they have 
     established that Medicaid beneficiaries have available and 
     accessible alternative sources of non-emergency, outpatient 
     services.
     Senate Bill
       No provision.
     House Bill
       The House bill would allow states, through a state plan 
     amendment, to impose increased cost-sharing on state-
     specified groups for non-emergency services provided in an 
     ER, when certain conditions are met. First, alternative non-
     emergency providers must be available and accessible to the 
     person seeking care. Second, after initial screening but 
     before the nonemergency care is provided at the ER, the 
     beneficiary must be told: (1) the hospital can require a 
     higher copayment, (2) the name and location of an alternative 
     non-emergency provider and that this provider and that a 
     lower copayment may apply, and (3) the hospital can provide a 
     referral. When these conditions are met, states could apply 
     or waive cost-sharing for services delivered by the alternate 
     provider.
       For persons with income below 100% FPL, cost-sharing for 
     non-emergency services in an ER could not exceed twice the 
     nominal amounts. Individuals exempt from premiums or service-
     related cost-sharing under other provisions of this bill may 
     be subject to nominal copayments for non-emergency services 
     in an ER, only when no cost-sharing is imposed for care in 
     hospital outpatient departments or by other alternative 
     providers in the area served by the hospital ER. Aggregate 
     caps on cost-sharing established under this bill (described 
     in Sec. 3121(a)) would still apply.
       These provisions would have no impact on a hospital's 
     obligations with respect to screening and stabilizing 
     emergency medical conditions, nor would they modify the 
     application of the prudent-layperson standard with respect to 
     payment or coverage of emergency services by any managed care 
     organization. In addition, no hospital or physician that 
     makes a cost-sharing determination would be liable in any 
     civil action or proceeding, absent a finding by clear and 
     convincing evidence of gross negligence. Liabilities related 
     to the provision of care (or failure to do so) would not be 
     affected by these provisions.
       ``Non-emergency services'' would mean any care or services 
     furnished in an ER that the physician determines does not 
     constitute an appropriate medical screening examination or 
     stabilizing examination and treatment screening required for 
     hospitals under Medicare law (regarding examination and 
     treatment for emergency medical conditions and women in 
     labor). ``Alternative non-emergency services provider'' would 
     mean a Medicaid-participating health care provider,

[[Page H12723]]

     such as a physician's office, health care clinic, community 
     health center, hospital outpatient department, or similar 
     health care provider that provides clinically appropriate 
     services for such diagnosis or treatment of the condition 
     within a clinically appropriate time of the provision of such 
     non-emergency services.
       The Secretary would be required to provide for payments to 
     states for the establishment of alternate non-emergency 
     providers, or networks of such providers. The House bill also 
     authorizes and appropriates $100 million for paying such 
     providers for the 4-year period beginning with 2006. The 
     Secretary would be required to give a preference to states 
     that establish or provide for alternate non-emergency 
     services providers (or networks) that serve rural or 
     underserved areas where beneficiaries may have limited access 
     to primary care providers, or in partnership with local 
     community hospitals. To access these funds, states would be 
     required to file an application meeting requirements set by 
     the Secretary.
       These amendments would apply to non-emergency services 
     furnished on or after the date of enactment of this Act.
     Conference Agreement
       The conference agreement includes the House bill, with 
     modifications. This provision allows states to permit a 
     hospital to impose cost sharing for non-emergency care 
     delivered in an ER under the same conditions identified in 
     the House bill. But the conditions defining the beneficiary 
     notification process are expanded to explicitly include a 
     medical screening examination for emergency medical 
     conditions as defined in Medicare law and a determination 
     that such an emergency does not exist, prior to the delivery 
     of non-emergency care in the ER. In addition, the hospital 
     (not the physician or hospital) is responsible for the 
     notification process.
       The conference agreement clarifies that no hospital or 
     physician can be held liable in any civil action or 
     proceeding for the imposition of cost sharing under this new 
     option, absent a finding of gross negligence by the hospital 
     or physician. This provision does not affect liability with 
     respect to examination and treatment for emergency medical 
     conditions (including women in labor) as specified in 
     Medicare law or otherwise applicable under state law based on 
     the provision of (or failure to provide) care.
       The conference agreement also slightly modifies the 
     definition of an alternative nonemergency services provider 
     by specifying that such providers be able to diagnose or 
     treat a condition contemporaneously with (rather than within 
     a clinically appropriate time of) the provision of similar 
     non-emergency services that would be provided in an ER.
       The conference agreement also changes the effective date of 
     these provisions to January 1, 2007.
     Use of Benchmark Packages (Section 6044 of the Conference 
         Agreement, no provision in the Senate Bill, and Section 
         3124 of the House Bill)
     Current Law
       Categorically needy (CN) eligibility groups include 
     families with children, the elderly, certain persons with 
     disabilities, and certain other pregnant women and children 
     who meet applicable financial standards. Medically needy (MN) 
     groups include the same types of individuals, but different, 
     typically higher financial standards apply. Some benefits are 
     mandatory for the CN (e.g., inpatient and outpatient hospital 
     care, lab and x-ray services, physician services, nursing 
     facility care for persons age 21 and over). Other benefits 
     are optional for the CN (e.g., other practitioner services, 
     routine dental care, physical therapy). Benefits offered to 
     CN groups must be the same statewide, and in amount, duration 
     and scope. States may offer a more restrictive benefit 
     package to the MN, but must offer prenatal and delivery 
     services, ambulatory services for persons under 21 and those 
     entitled to institutional services, and home health services 
     for those entitled to nursing facility care. Benefits offered 
     to MN groups must be the same statewide, and in amount, 
     duration and scope. Changes in comparability or statewideness 
     for benefits for CN and MN groups require a waiver.
       As described above, some benefits are mandatory for the CN 
     (e.g., inpatient and outpatient hospital care, lab and x-ray 
     services, physician services, FQHC services, nursing facility 
     care for persons age 21 and over). Other benefits are 
     optional for the CN (e.g., other practitioner services, 
     routine dental care, physical therapy). Benefits offered to 
     CN groups must be the same statewide, and in amount, duration 
     and scope. States may offer a more restrictive benefit 
     package to the MN, but must offer prenatal and delivery 
     services, ambulatory services for persons under 21 and those 
     entitled to institutional services, and home health services 
     for those entitled to nursing facility care. Benefits offered 
     to MN groups must be the same statewide, and in amount, 
     duration and scope. Changes in comparability or statewideness 
     for benefits for CN and MN groups require a waiver.
       Under the Early and Periodic, Screening, Diagnostic and 
     Treatment (EPSDT) benefit, Medicaid children in CN groups are 
     guaranteed access to all federally coverable routine and 
     follow-up dental services necessary to treat a dental 
     problem. EPSDT may be offered to MN children.
       Both the services provided by rural health clinics (RHCs) 
     and federally qualified health services (FQHCs) are required 
     benefits for CN groups under Medicaid. Among other mandatory 
     benefits for MN groups, states must offer ambulatory services 
     for persons under 21 and those entitled to institutional 
     services. Such ambulatory services may include RHC and FQHC 
     services at state option. In general, RHCs and FQHCs are paid 
     on a per visit basis, using a prospective payment system that 
     takes into account costs incurred and changes in the scope of 
     services provided. Per visit payment rates are also adjusted 
     annually by the Medicare Economic Index applicable to primary 
     care services.
     Senate Bill
       No provision.
     House Bill
       The House bill would give states the option to provide 
     Medicaid to state-specified groups through enrollment in 
     benchmark and benchmark-equivalent coverage (described 
     below). States could only apply this option to eligibility 
     categories established before the date of enactment of this 
     provision. States may choose to provide wrap-around and 
     additional benefits.
       Enrollment in benchmark and benchmark-equivalent coverage 
     could be required for ``full benefit eligible individuals,'' 
     including persons eligible for all services covered for the 
     CN, or any other category of eligibility for all covered 
     services as determined by the Secretary. Certain individuals 
     would be excluded from the definition of a full-benefit 
     eligible, including (1) the MN; (2) CN individuals in certain 
     states who are required to pay for medical expenses from 
     their income until their remaining net income meets SSI 
     financial standards in effect in 1972; and (3) other 
     individuals who qualify for Medicaid when costs incurred for 
     medical expenses or other remedial care are subtracted from 
     income to meet financial eligibility requirements (also known 
     as spend-down populations).
       The House bill would require that specified groups be 
     exempted from this option, including: (1) mandatory pregnant 
     women and children; (2) dual eligibles (i.e., Medicaid 
     beneficiaries also entitled to benefits under Medicare); (3) 
     terminally ill persons receiving Medicaid hospice services; 
     (4) individuals in medical institution who are required, as a 
     condition of receiving institutional care, to pay for costs 
     of medical care except for a minimal amount retained from 
     their income for personal needs; (5) individuals who are 
     medically frail or who have special medical needs, as 
     identified in accordance with regulations of the Secretary; 
     and (6) individuals who qualify for Medicaid long-term care 
     services (i.e., nursing facility services, a level of care in 
     any institution equivalent to nursing facility services, home 
     and community-based waiver services, home health services, 
     home and community-care for functionally disabled elderly 
     individuals, personal care, and other optional long-term care 
     services offered by the state).
       Benchmark and benchmark-equivalent packages would be nearly 
     identical to those offered under SCHIP, with some additions. 
     Benchmark coverage would include: (1) the standard Blue 
     Cross/Blue Shield preferred provider plan under FEHBP; (2) 
     health coverage for state employees; and (3) health coverage 
     offered by the largest commercial HMO. Benchmark equivalent 
     coverage would have the same actuarial value as one of the 
     benchmark plans. Such coverage would include: (1) inpatient 
     and outpatient hospital services, (2) physician services, (3) 
     lab and x-ray services, (4) well child care, including 
     immunizations, and (5) other appropriate preventive care 
     (designated by the Secretary). Such coverage must also 
     include at least 75% of the actuarial value of coverage under 
     the benchmark plan for: (1) prescribed drugs, (2) mental 
     health services, (3) vision care, and (4) hearing services. 
     Determination of actuarial value would follow generally 
     accepted actuarial principles and methodologies and would be 
     conducted by a member of the American Academy of Actuaries.
       Both benchmark and benchmark-equivalent coverage would 
     include ``qualifying child benchmark dental coverage.'' A 
     qualifying child would include individuals under 18 with 
     family income below 133% FPL. Benchmark dental coverage would 
     be equivalent to or better than the dental plan that covers 
     the greatest number of individuals in the state who are not 
     eligible for Medicaid.
       States could only enroll eligible beneficiaries in 
     benchmark and benchmark-equivalent coverage if such persons 
     have access to services provided by RHCs and FQHCs, and the 
     Medicaid prospective payment system for both types of 
     providers remains in effect.
       These provisions would be effective upon the date of 
     enactment.
     Conference Agreement
       The conference agreement includes the House bill, with 
     modifications. For any child under age 19 in one of the major 
     mandatory and optional eligibility groups (defined in Section 
     1902(a)(10)(A) under the state Medicaid plan, wrap-around 
     benefits to the benchmark or benchmark-equivalent coverage 
     consists of early and periodic screening, diagnostic and 
     treatment services as defined in current Medicaid law. The 
     agreement drops benchmark dental coverage and accompanying 
     provisions defining the children who would qualify for such 
     benchmark dental coverage.
       Also, under the conference agreement, states may exercise 
     this option only for eligibility groups that were established 
     under

[[Page H12724]]

     the state plan before the date of enactment of this option.
       The conference agreement drops mandatory children under 18 
     (under Section 1902(a)(10)(A)(i) from the list of groups 
     exempted from this option.
       The conference agreement also expands the list of specified 
     groups that would be exempted from benchmark coverage to 
     include: (1) individuals who qualify for Medicaid under the 
     state plan on the basis of being blind or disabled regardless 
     of whether the individual is eligible for SSI on such basis, 
     including children with disabilities that meet SSI disability 
     standards who require institutional care, but for whom care 
     is delivered outside the institution, and the cost of that 
     care does not exceed the otherwise applicable institutional 
     care (also known as Katie Beckett or TEFRA children); (2) 
     children in foster care receiving child welfare services 
     (under Part B of Title IV) and children receiving foster care 
     or adoption assistance under Part E of Title IV without 
     regard to age; (3) individuals who qualify for Medicaid on 
     the basis of receiving assistance under TANF (as in effect on 
     or after the welfare reform effective date); (4) women in the 
     breast and cervical cancer eligibility group (a technical 
     change from the House bill); and (5) other ``limited services 
     beneficiaries,'' including certain tuberculosis-infected 
     individuals, and legal and undocumented non-citizens who meet 
     the financial and categorical requirements for Medicaid 
     eligibility without regard to time in the U.S. and are 
     eligible only for emergency medical services.
       The conference agreement also adds to the set of three 
     benchmark benefit packages, a fourth option called 
     ``secretary approved coverage'' which may include any other 
     health benefits coverage that the Secretary determines will 
     provide appropriate coverage for the population targeted to 
     receive such coverage.
       Finally, the conference agreement changes the effective 
     date of these provisions to January 1, 2007.

               Chapter 5--State Financing Under Medicaid

     Managed Care Organization Provider Tax (Section 6051 of the 
         Conference Agreement, and Section 6033 of the Senate 
         Bill, and Section 3142 of the House Bill)
     Current Law
       States' ability to use provider-specific taxes to fund 
     Medicaid expenditures is limited. If a state establishes 
     provider-specific taxes to fund the state's share of program 
     costs, reimbursement of the federal share will not be 
     available unless the tax program meets the following three 
     rules: the taxes collected cannot exceed 25% of the state (or 
     non-federal) share of Medicaid expenditures; the state cannot 
     provide a guarantee to the providers that the taxes will be 
     returned to them; and the tax must be ``broad-based.'' A 
     broad-based tax is a tax that is uniformly applied to all 
     providers or services within the provider class. The federal 
     statute identifies each of the classes of providers or 
     services for the purpose of determining whether a tax is 
     broad-based.
       Medicaid managed care organizations (MCOs) are identified 
     as a separate class of providers for the purposes of 
     determining if a tax is broad-based. This class is unlike all 
     of the other classes of providers or services because it is 
     limited to only Medicaid providers. Other classes of 
     providers or services identified in statute, such as 
     inpatient hospital services, outpatient hospital services, 
     physicians--are not restricted to Medicaid providers or 
     Medicaid services.
     Senate Bill
       The Senate bill would expand the Medicaid MCO provider 
     class to include all MCOs. To qualify for federal 
     reimbursement, a state's provider tax would need to apply to 
     both Medicaid and non-Medicaid MCOs. This would make the MCO 
     provider class more consistent with the other provider 
     classes for purposes of determining if a provider tax is 
     broad-based.
       The provision would become effective on January 1, 2006 
     except in States that have, as of December 31, 2005, a tax on 
     the Medicaid MCO class of providers as defined under current 
     law. The provision would not apply to those states.
     House Bill
       Similar to Senate provision except the provision would 
     become effective upon enactment except for in states with 
     taxes based on the current law Medicaid MCO provider class. 
     For those states, the prohibition would become effective on 
     October 1, 2008 and the reduction in Medicaid reimbursement 
     due to this provision would be 50% for the fiscal year 
     beginning on that day.
     Conference Agreement
       The conference agreement expands the Medicaid MCO provider 
     class to include all MCOs. To qualify for federal 
     reimbursement, a state's provider tax would need to apply to 
     both Medicaid and non-Medicaid MCOs. The provision becomes 
     effective upon enactment except in states with taxes based on 
     the current law Medicaid MCO provider class as of December 8, 
     2005. In those states, the provision becomes effective on 
     October 1, 2009.
     Reforms of Case Management and Targeted Case Management 
         Services (Section 6052 of the Conference Agreement, and 
         Section 6031 of the Senate Bill, and Section 3146 of the 
         House Bill)
     Current Law
       Under current Medicaid law (Section 1915(g)(2) of the 
     Social Security Act), case management is defined as including 
     services to assist a Medicaid beneficiary in gaining access 
     to needed medical, social, educational and other services. 
     Case management services are an optional benefit under the 
     Medicaid state plan. The term ``targeted case management'' 
     (TCM) refers to situations in which these services are not 
     provided statewide to all Medicaid beneficiaries but rather 
     are provided only to specific classes of Medicaid eligible 
     individuals as defined by the state (e.g., those with chronic 
     mental illness), or persons who reside in a specific area.
       Several states extend the Medicaid TCM benefit to 
     individuals who may also be receiving case management 
     services as a component of another state and/or federal 
     program. For example, a state may provide TCM services for 
     Medicaid beneficiaries in foster care--defined in the 
     Medicaid state plan as ``children in the state's custody and 
     who are placed in foster homes.'' As part of the foster care 
     program, children receive certain case management services 
     regardless of whether or not they are a Medicaid beneficiary.
       In addition, the existing federal guidance is conflicting 
     with respect to the process states should follow to claim 
     Medicaid reimbursement for TCM services when another program 
     also covers case management services for the same 
     beneficiary. The State Medicaid Manual (Section 4302.2) 
     states that claims for targeted case management services must 
     be fully documented for a specific Medicaid beneficiary in 
     order to receive payment. In addition, documentation that 
     includes time studies and cost allocation plans ``are not 
     acceptable as a basis for Federal participation in the 
     costs of Medicaid services.'' Cost allocation plans are a 
     narrative description of the procedures that a state 
     agency uses in identifying, measuring, and allocating the 
     state agency's administrative costs incurred for 
     supervising or operating programs. Per federal regulations 
     (45 CFR 95.505), the cost allocation plan does not include 
     payments for services and goods provided directly to 
     program recipients. However, a State Medicaid Director's 
     (SMD) letter dated January 19, 2001, which discusses 
     targeted case management services for children in foster 
     care under the federal Title IV-E program, requires states 
     to ''properly allocate case management costs between the 
     two programs in accordance with OMB Circular A-87 under an 
     approved cost allocation program.'' Thus, this letter 
     extended the application of cost allocation plans to claim 
     reimbursement for case management services when a child is 
     receiving these services under both the Title IV-E (foster 
     care) and Medicaid programs.
     Senate Bill
       This proposal would further define the Medicaid TCM benefit 
     under Section 1915(g)(2) of the Social Security Act, and 
     would codify the ability of states to use an approved cost 
     allocation plan (as outlined under OMB Circular A-87, or 
     other related or subsequent guidance) for determining the 
     amount that can be billed as Medicaid TCM services when case 
     management is also reimbursable by another federally-funded 
     program.
       Specifically, the proposal would clarify that the TCM 
     benefit includes the following: (1) assessment of an eligible 
     individual to determine service needs by taking a client 
     history, identifying an individual's needs and completing 
     related documentation, and if needed, gathering information 
     from other sources; (2) development of a specific care plan 
     based on the information collected through an assessment that 
     specifies the goals and actions to address the individual's 
     needs; (3) referral and related activities to help an 
     individual obtain needed services; and (4) monitoring and 
     follow-up activities including activities and contacts to 
     ensure the care plan is effectively implemented and 
     adequately addressing the individual's needs.
       The proposal would, also specify certain activities that 
     are not reimbursable as TCM services. First, the TCM benefit 
     would not include the direct delivery of an underlying 
     medical, educational, social or other services to which an 
     eligible individual has been referred. In addition, with 
     respect to the direct delivery of foster care services, the 
     TCM benefit would not cover: research gathering and 
     completion of required foster care documentation, assessing 
     adoption placements, recruiting or interviewing potential 
     foster care parents, serving legal papers, home 
     investigations, providing transportation, administering 
     foster care subsidies, and making placement arrangements.
       In cases where a TCM provider contacts individuals who are 
     not Medicaid eligible or who are not part of the TCM target 
     population, the activity could be billed as TCM services if 
     the purpose of the contact is directly related to the 
     management of the eligible individual's care. If the contact 
     is related to the identification and management of the non-
     eligible or non-targeted individual's needs and care, the 
     activity may not be billed as TCM services.
       Finally, consistent with existing Medicaid law, this 
     proposal would also specify that federal Medicaid funding 
     would only be available for TCM services if there are no 
     other third parties liable to pay for such services, 
     including as reimbursement under a medical, social, 
     educational, or other program.
       This provision would take effect January 1, 2006.
     House Bill
       Same as Senate provision.

[[Page H12725]]

     Conference Agreement
       The conference agreement modifies the Senate and House 
     bills to differentiate between case management and targeted 
     case management services. It would define case management 
     services in federal law as services that will assist 
     Medicaid-eligible individuals in gaining access to needed 
     medical, social, educational, and other services including: 
     (1) assessment of an eligible individual to determine service 
     needs by taking a client history, identifying an individual's 
     needs and completing related documentation, and if needed, 
     gathering information from other sources; (2) development of 
     a specific care plan based on the information collected 
     through an assessment that specifies the goals and actions to 
     address the individual's needs; (3) referral and related 
     activities to help an individual obtain needed services; and 
     (4) monitoring and follow-up activities including activities 
     and contacts to ensure the care plan is effectively 
     implemented and adequately addressing the individual's needs.
       The conference agreement also establishes those activities 
     that are not reimbursable as case management services 
     including the direct delivery of an underlying medical, 
     educational, social or other services to which an eligible 
     individual has been referred. With respect to the direct 
     delivery of foster care services, case management would not 
     include research gathering and completion of required foster 
     care documentation, assessing adoption placements, recruiting 
     or interviewing potential foster care parents, serving legal 
     papers, home investigations, providing transportation, 
     administering foster care subsidies, and making placement 
     arrangements.
       The term ``targeted case management services'' is defined 
     as case management services that are provided to specific 
     classes of individuals or to individuals who reside in 
     specific areas.
       In cases where a case management provider contacts 
     individuals who are not Medicaid eligible, or who are not 
     part of the TCM target population, the activity could be 
     billed as case management services if the purpose of the 
     contact is directly related to the management of the eligible 
     individual's care. If the contact is related to the 
     identification and management of the non-eligible or non-
     targeted individual's needs and care, the activity may not be 
     billed as case management services.
       Consistent with existing Medicaid law, this proposal would 
     also specify that federal Medicaid funding would only be 
     available for case management (or TCM) services if there are 
     no other third parties liable to pay for such services, 
     including as reimbursement under a medical, social, 
     educational, or other program. If case management (or TCM) 
     services are reimbursable by another federally-funded program 
     the state would be required to allocate the costs of these 
     services using OMB Circular A-87 (or any related or successor 
     guidance or regulations).
       Finally, the conference agreement established that (1) 
     nothing in the provision would affect the application of 
     rules with respect to third party liability under programs or 
     activities carried out under Title XXVI of the Public Health 
     Service Act (the HIV Health Care Services Program) or the 
     Indian Health Service; and (2) the Secretary would be 
     required to promulgate regulations to carry out the changes 
     made by this provision. The effective date of this 
     provision would be January 1, 2006.
     Additional FMAP Adjustments (Section 6053 of the Conference 
         Agreement, Sections 6032 and 6037 of the Senate Bill, and 
         Sections 3148 and 3205 of the House Bill)
     Current Law
       The federal medical assistance percentage (FMAP) is the 
     rate at which states are reimbursed for most Medicaid service 
     expenditures. It is based on a formula that provides higher 
     reimbursement to states with lower per capita incomes 
     relative to the national average (and vice versa); it has a 
     statutory minimum of 50% and maximum of 83%. An enhanced FMAP 
     is available for both services and administration under the 
     State Children's Health Insurance Program (SCHIP), subject to 
     the availability of funds from a state's SCHIP allotment. In 
     addition to Medicaid and SCHIP, the FMAP is used in 
     determining federal reimbursement for a number of other 
     programs, including foster care and adoption assistance under 
     Title IV-E of the Social Security Act.
       When state FMAPs are calculated by HHS for an upcoming 
     fiscal year, the state and U.S. amounts used in the formula 
     are equal to the average of the three most recent calendar 
     years of data on per capita personal income available from 
     the Department of Commerce's Bureau of Economic Analysis 
     (BEA). For example, to calculate FMAPs for FY2006, HHS used 
     per capita personal income data for 2001, 2002, and 2003 that 
     became available from BEA in October 2004.
       BEA revises its most recent estimates of state per capita 
     personal income on an annual basis to incorporate revised 
     Census Bureau population figures and newly available source 
     data. It also undertakes a comprehensive data revision--
     reflecting methodological and other changes--every few years 
     that may result in upward and downward revisions to each of 
     the component parts of personal income, which include: wages 
     and salaries, supplements to wages and salaries (such as 
     employer contributions for employee pension and insurance 
     funds), proprietors' income, and dividends, interest, and 
     rent.
       As a result of these annual and comprehensive revisions, it 
     is often the case that the value of a state's per capita 
     personal income for a given year will change over time. For 
     example, the 2001 per capita personal income data published 
     by BEA in October 2003 (used in the calculation of FY2005 
     FMAPs) differed from the 2001 per capita personal income 
     published in October 2004 (used in the calculation of FY2006 
     FMAPs).
       P.L. 106-554 (Consolidated Appropriations Act, 2001), 
     provided that for fiscal years 2001 through 2005, the 
     Medicaid and SCHIP FMAPs for Alaska would be calculated using 
     the state's per capita income divided by 1.05. Dividing by 
     1.05 lowered the state's per capita income, thereby 
     increasing its FMAP.
     Senate Bill
       Under the Senate bill, FY2006 FMAPs for Medicaid and SCHIP 
     would be re-computed for all states so that no FY2006 FMAP 
     would be less than the greater of: (1) a state's FY2005 FMAP 
     minus 0.5 percentage points (0.1 in the case of Delaware and 
     Michigan, 0.3 in the case of Kentucky) or (2) the FY2006 FMAP 
     that would have been determined for a state if per capita 
     incomes for 2001 and 2002 that were used to calculate the 
     state's FY2005 FMAP were used.
       In a separate provision, if Alaska's calculated FY2006 or 
     FY2007 FMAP for Medicaid or SCHIP is less than its FY2005 
     FMAP, the FY2005 FMAP would apply.
     House Bill
       Under the House bill, for purposes of computing Medicaid 
     FMAPs beginning with FY2006, employer contributions toward 
     pensions that exceed 50% of a state's total increase in 
     personal income for a period would be excluded from the per 
     capita income of a state, but not from U.S. per capita 
     income.
       In a separate provision, for purposes of computing Medicaid 
     and SCHIP FMAPs for any year after 2006 for a state that the 
     Secretary of HHS determines has a significant number of 
     individuals who were evacuated to and live in the state as a 
     result of Hurricane Katrina as of October 1, 2005, the 
     Secretary would disregard such evacuees and their incomes.
     Conference Agreement
       The conference agreement follows the Alaska provision in 
     the Senate bill and the Katrina provision in the House bill.
     DSH Allotment for the District of Columbia (Section 6054 of 
         the Conference Agreement, and Section 6035 of the Senate 
         Bill, and no provision in the House Bill)
     Current Law
       States and the District of Columbia are required to 
     recognize, in establishing hospital payment rates, the 
     situation of hospitals that serve a disproportionate number 
     of Medicaid beneficiaries and other low-income patients with 
     special needs. Under broad federal guidelines, each state 
     determines which hospitals receive DSH payments and the 
     payment amounts to be made to each qualifying hospital. The 
     federal government shares in the cost of state DSH payments 
     at the same federal matching percentage as for most other 
     Medicaid services. Total federal reimbursement for each 
     state's DSH payments, however, are capped at a statewide 
     ceiling, referred to as the state's DSH allotment.
     Senate Bill
       The Senate bill would raise the allotments for the District 
     of Columbia for FY 2000, 2001, and 2002 from $32 million to 
     $49 million. The higher allotments would be used to calculate 
     DSH allotments beginning with FY 2006 amounts. The provision 
     would take effect as if enacted on October 1, 2005 and would 
     apply to expenditures made on or after that date.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes a provision similar to 
     the Senate provision. The agreement clarifies that the 
     increased amounts calculated based on the modified allotments 
     for FY 2000, 2001, and 2002 only apply to DSH expenditures 
     applicable to fiscal year 2006 and subsequent fiscal years 
     that are paid on or after October 1, 2005.
     Increase in Medicaid Payments to Insular Areas. (Section 6055 
         of the Conference Agreement, no provision in the Senate 
         Bill, and Section 3141 of the House Bill)
     Current Law
       In the 50 states and the District of Columbia, Medicaid is 
     an individual entitlement. There are no limits on the federal 
     payments for Medicaid as long as the state is able to 
     contribute its share of the matching funds. In contrast, 
     Medicaid programs in the territories are subject to spending 
     caps. For fiscal year 1999 and subsequent fiscal years, these 
     caps are increased by the percentage change in the medical 
     care component of the Consumer Price Index (CPI-U) for all 
     Urban Consumers (as published by the Bureau of Labor 
     Statistics). The federal Medicaid matching rate, which 
     determines the share of Medicaid expenditures paid for by the 
     federal government, is statutorily set at 50 percent of the 
     territories. Therefore, the federal government pays 50% of 
     the cost of Medicaid items and services in the territories up 
     to the spending caps.
     Senate Bill
       No provision.
     House Bill
       For each of fiscal years 2006 and 2007, the House bill 
     would increase the total annual cap on federal funding for 
     the Medicaid programs in each of the Virgin Islands, Guam, 
     the Northern Marianas, and American Samoa. Puerto Rico would 
     not receive additional federal Medicaid funding from this 
     provision.

[[Page H12726]]

       For the Virgin Islands and Guam, the FY2006 total annual 
     Medicaid caps would be increased by $2.5 million and the 
     FY2007 caps would be increased by $5.0 million. For the 
     Northern Marianas, the FY2006 total annual Medicaid cap would 
     be increased by $1.0 million and the FY2007 cap would be 
     increased by $2.0 million. For American Samoa, the FY2006 
     total annual Medicaid cap would be increased by $2.0 million 
     and the FY2007 cap would be increased by $4.0 million. For 
     fiscal year 2008 and subsequent fiscal years, the total 
     annual cap on federal funding for the Medicaid programs in 
     each of the Virgin Islands, Guam, the Northern Marianas, and 
     American Samoa would be calculated by increasing the FY2007 
     ceiling, as modified by this provision, by the percentage 
     change in the medical care component of the Consumer Price 
     Index (CPI-U) for all Urban Consumers (as published by the 
     Bureau of Labor Statistics).
     Conference Agreement
       The conference agreement follows the House bill.
     Demonstration Project Regarding Medicaid Coverage of Low-
         income HIV-infected individuals (No provision in the 
         Conference Agreement, Sec. 6039(c) of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       Section 1115 gives the Secretary of HHS authority to modify 
     virtually all aspects of the Medicaid (and SCHIP) programs. 
     Among other projects, the Secretary has used the Section 1115 
     waiver authority to approve benefit-specific demonstrations 
     that provide targeted services to certain individuals. For 
     example, under existing Medicaid HIV/AIDS Section 1115 
     demonstration waivers, the Secretary approved programs that 
     provide a limited set of Medicaid benefits (e.g., case 
     management, and pharmacy services) to individuals with HIV/
     AIDS who would not otherwise be eligible for Medicaid. 
     Approved Section 1115 waivers are deemed to be part of a 
     state's Medicaid (or SCHIP) state plan for purposes of 
     federal reimbursement. Project costs associated with waiver 
     programs granted under the Medicaid (or SCHIP) programs are 
     subject to that state's FMAP (or enhanced-FMAP). Unlike 
     regular Medicaid (or SCHIP), CMS waiver guidance specifies 
     that costs associated with waiver programs must be budget 
     neutral (or allotment neutral) to the federal government over 
     the life of the waiver program whereby the federal and state 
     government negotiate a spending cap beyond which the federal 
     government has no fiscal responsibility.
     Senate Bill
       The Senate Bill would require the Secretary of HHS to allow 
     states to seek approval for time limited (i.e., 5-year) 
     Section 1115 demonstration projects that provide full 
     Medicaid coverage to specified HIV-infected individuals. For 
     fiscal years 2006 through 2010, $450,000,000 in federal funds 
     would be appropriated for such demonstrations. From this 
     amount, the Secretary would allocate money to states and 
     territories (without regard to existing federal Medicaid 
     spending caps applicable in the territories) with approved 
     HIV Section 1115 demonstrations based on the availability of 
     such funds. Allotment of funds among states (or territories) 
     with approved demonstrations would be based on an amount 
     equal to the state's SCHIP Enhanced Federal Medical 
     Assistance Percentage (Enhanced-FMAP) for quarterly 
     expenditures associated with medical assistance provided to 
     individuals under the waiver up to the specified cap. The 
     Secretary would be required to submit a program evaluation to 
     Congress not later than December 31, 2010. This provision 
     would be effective on January 1, 2006.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement does not include the Senate bill.
     Inclusion of Podiatrists As Physicians (no provision in the 
         Conference Agreement, Section 6034 of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       Under Medicaid, services provided by podiatrists may be 
     covered under the optional ``other practitioners'' benefit 
     category. ``Physician services'' are a mandatory Medicaid 
     benefit.
     Senate Bill
       The Senate bill would treat podiatrists as physicians, as 
     is the case under Medicare. Thus, states would be required to 
     cover the medical services of podiatrists (i.e., doctors of 
     podiatric medicine) under Medicaid. This provision would 
     apply to al1 such services furnished on or after January 1, 
     2006.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement does not include this provision.
     Demonstration Project Regarding Medicaid Reimbursement for 
         Stabilization of Emergency Medicaid Conditions by Non-
         Publicly Owned or Operated Institutions for Mental 
         Diseases (no provision in the Conference Agreement, 
         Section 6036 of the Senate Bill, and no provision in the 
         House Bill)
     Current Law
       An IMD is defined as a hospital, nursing facility, or other 
     institution of more than 16 beds, that is primarily engaged 
     in providing diagnosis, treatment, or care of persons with 
     mental diseases, including medical attention, nursing care, 
     and related services. The 1950 amendments to the Social 
     Security Act established the prohibition of federal 
     assistance for IMD residents as well as for patients 
     diagnosed with a psychosis found in other medical 
     institutions. When Medicaid was established in 1965, the law 
     included a state option to allow Medicaid funding for 
     inpatient psychiatric care rendered in general hospitals as 
     we1l as funding for specific services provided to residents 
     age 65 years and older in IMDs. The 1972 amendments allowed 
     for optional coverage, under certain circumstances, for IMD 
     residents under age 21 or, in some cases, under age 22. In 
     general, reimbursement for services obtained in IMDs by 
     Medicaid beneficiaries ages 22 to 64 years remains 
     prohibited. The term ``State'' includes the District of 
     Columbia, Puerto Rico, the Virgin Islands, Guam, the Northern 
     Mariana Islands, and American Samoa.
       Under Medicare, ``emergency medical condition'' means a 
     medical condition with acute symptoms of sufficient severity 
     such that the absence of immediate medical attention could 
     result in (1) placing the health of the individual in serious 
     jeopardy, (2) serious impairment to bodily functions, or (3) 
     serious dysfunction of any organ. Under Medicare, the term 
     ``stabilize'' means medical treatment as may be necessary to 
     assure, within reasonable medical probability, that no 
     material deterioration of the condition is likely to result 
     from or occur during the transfer of the individual from a 
     facility.
     Senate Bill
       The Senate bill would require the Secretary to establish a 
     3-year demonstration project in eligible states to provide 
     Medicaid coverage for certain IMD services (not publicly-
     owned or operated) for Medicaid eligible individuals who are 
     between the ages of 21 and 64, and who require IMD services 
     to stabilize an emergency medical condition. Upon approval of 
     an application, eligible states would include Arizona, 
     Arkansas, Louisiana, Maine, North Dakota, Wyoming, and four 
     additional states to be selected by the Secretary to provide 
     geographic diversity. The provision would appropriate $30 
     million for FY2006 for the demonstration which would be 
     available through December 31, 2008. The Secretary would 
     allocate funds to eligible states based on their applications 
     and the availability of funds. Payments to states would be 
     drawn from these allocations, based on the federal matching 
     rate (FMAP) for benefits.
       For purposes of the demonstration, the Secretary would be 
     required to waive current law limitations on payments for 
     services delivered to persons under 65 who are patients in an 
     IMD. The Secretary would have the option to also waive other 
     requirements in Sections XI and XIX, including requirements 
     relating to statewideness and comparability of benefits, only 
     to the extent necessary to carry out the demonstration 
     project. The terms ``emergency medical condition'' and 
     ``stabilize,'' as defined under Medicare, would apply to the 
     demonstration described in this provision.
       The Senate bill would also require the Secretary to submit 
     annual reports to Congress on the progress of the 
     demonstration project. No later than March 31, 2009, the 
     Secretary would submit to Congress a final report describing 
     whether the demonstration: (1) resulted in increased access 
     to Medicaid inpatient mental health services, (2) produced a 
     significant reduction in the use of higher cost emergency 
     room services for Medicaid beneficiaries, (3) impacted the 
     costs of providing Medicaid inpatient psychiatric care, and 
     (4) should be continued after December 31, 2008, and expanded 
     nationwide.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement does not include this provision.

                      Chapter 6--Other Provisions

                  Subchapter A--Family Opportunity Act

     Opportunity for Families of Disabled Children to Purchase 
         Medicaid Coverage for Such Children (Section 6062 of the 
         Conference Agreement, Section 6042 of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       For children with disabilities, there are a number of 
     potentially applicable Medicaid eligibility groups, some 
     mandatory but most optional. For some of these groups, 
     disability status or medical need is directly related to 
     Medicaid eligibility (e.g., children receiving SSI with 
     family income below 75% FPL). But there are other pathways 
     through which such children may qualify for Medicaid coverage 
     for which disability status and/or medical need are 
     irrelevant (e.g., children under age 6 with family income 
     below 133% FPL). All of the Medicaid eligibility pathways for 
     children require income levels that are genera11y below 300% 
     of the federal poverty level (FPL) with some state-specific 
     exceptions.
       States may require Medicaid beneficiaries to apply for 
     coverage in certain employer-sponsored group health plans (in 
     which such persons are eligible) when it is cost-effective to 
     do so (defined below). This requirement may be imposed as a 
     condition of continuing Medicaid eligibility, except that 
     failure of a parent to enroll a child must not affect the 
     child's continuing eligibility for Medicaid. If all members 
     of the family are not eligible for Medicaid, and the group 
     health plan requires

[[Page H12727]]

     enrollment of the entire family, Medicaid will pay associated 
     premiums for full family coverage if doing so is cost-
     effective. Medicaid will not pay deductibles, coinsurance or 
     other cost-sharing for family members ineligible for 
     Medicaid. Third party liability rules apply to coverage in a 
     group health plan; that is, such plans, not Medicaid, must 
     pay for all covered services under the plan. Cost-
     effectiveness means that the reduction in Medicaid 
     expenditures for Medicaid beneficiaries enrolled in a group 
     health plan is likely to be greater than the additional costs 
     for premiums and cost-sharing required under the group health 
     plan.
       For certain eligibility categories, states may not impose 
     enrollment fees, premiums or similar charges. States are 
     specifically prohibited from requiring payment of deductions, 
     cost-sharing or similar charges for services furnished to 
     children under 18 (up to age 21; or reasonable subcategories, 
     at state option). Also, in certain circumstances, states may 
     impose monthly premiums for Medicaid. For example, states may 
     require certain workers with disabilities to pay premiums and 
     cost-sharing set on a sliding scale based on income. For one 
     of these groups, states may require those with income between 
     250% and 450% FPL to pay the full premium. But the sum of 
     such payments may not exceed 7.5% of income. For other 
     groups, states may not require prepayment of premiums and may 
     not terminate eligibility due to failure to pay premiums, 
     unless such failure continues for at least 60 days. States 
     may also waive premiums when such payments would cause undue 
     hardship.
       Unless otherwise specified for a given coverage group, 
     Medicaid eligibility for children is limited to those in 
     families with income up to 133 and 1/3% of the applicable 
     AFDC payment standard in place as of July 16, 1996. In 
     addition, targeted low-income children under SCHIP statute 
     are defined as those who would not qualify for Medicaid under 
     the state plan in effect on 70 March 31, 1997. Payments for 
     services provided to children who receive Medicaid benefits 
     through an expansion of eligibility under SCHIP authority are 
     reimbursed by the federal government at the enhanced federal 
     medical assistance percentage (E-FMAP) rate, and funds based 
     on this rate are drawn from annual SCHIP allotments. The 
     SCHIP E-FMAP builds on the Medicaid FMAP. The FMAP formula is 
     designed to provide a higher federal matching rate for states 
     with lower average per capita income, compared to the 
     national average.
     Senate Bill
       The Senate bill would create a new optional Medicaid 
     eligibility group for children with disabilities under age 19 
     who meet the severity of disability required under the 
     Supplemental Security Income (SSI) program with family income 
     that exceeds SSI financial standards but is below 300% FPL. 
     Medicaid coverage would be phased in by age group, beginning 
     with children through age 6 in the second through fourth 
     quarters of FY2008, then covering children through age 12 
     beginning in FY2009, and finally, covering children through 
     age 18 during FY2010 and thereafter.
       The Senate bill would require states to require certain 
     parents of children eligible for Medicaid under the new 
     optional coverage group to enroll in family coverage through 
     employer-sponsored insurance (ESI) if certain conditions are 
     met. When the employer offers family coverage, the parent is 
     eligible for such coverage, and the employer contributes at 
     least 50% of the total cost of annual premiums for such 
     coverage, states must require participation in such coverage 
     as a condition of continuing Medicaid eligibility for the 
     child. Also, if such coverage is obtained, states must reduce 
     premiums by an amount that reasonably reflects the premium 
     contribution made by the parent for private coverage on 
     behalf of a child with a disability. States could pay any 
     portion of required premiums on behalf of eligible children 
     under such plans. Medicaid would be the secondary payer to 
     these ESI plans. Benefits offered by Medicaid but not offered 
     by the ESI plans would be covered under Medicaid.
       States would be permitted, within certain limits, to 
     require families with children-that qualify for Medicaid 
     under the new optional eligibility category to pay monthly 
     premiums on a sliding scale based on income, but only if 
     specific caps on aggregate payments for cost-sharing 
     (premiums plus other charges) for employer-sponsored family 
     coverage are met. These caps specify that cost-sharing would 
     not exceed 5% of income for families with income up to 200% 
     FPL, and would not exceed 7.5% of income for families with 
     income between 200% and 300% FPL. States could not require 
     prepayment of premiums, nor would states be allowed to 
     terminate eligibility of an enrolled child for failure to pay 
     premiums unless lack of payment continues for a minimum of 60 
     days beyond the due date. States could waive payment of 
     premiums when such payment would cause undue hardship.
       The Senate bill would permit the income level for the new 
     optional coverage group (set at 300% FPL) to exceed the 
     otherwise applicable AFDC-related income standard for 
     children under Medicaid. This section also stipulates that 
     children with disabilities made eligible for Medicaid through 
     the new optional coverage group would not be considered to be 
     targeted low-income children as defined under SCHIP. Thus, 
     the regular Medicaid FMAP, rather than the higher SCHIP E-
     FMAP, would apply for determining the federal share of 
     Medicaid expenditures for the new optional coverage group. In 
     addition, federal payments would be drawn from the open-ended 
     Medicaid account and not the capped SCHIP account.
       These provisions would be effective for items and services 
     furnished on or after January 1, 2008.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate bill, with 
     modifications. First, the agreement defines qualifying 
     children as those considered disabled under the SSI program 
     without regard to any income or asset eligibility 
     requirements that apply under SSI for children and whose 
     family income does not exceed 300% FPL. In addition, the 
     agreement moves up the start date by one year for phasing in 
     Medicaid coverage for this new group. That is, Medicaid 
     coverage would be phased in, beginning with children through 
     age 6 in the second through fourth quarters of FY2007 (rather 
     than FY2008), then covering children through age 12 beginning 
     in FY2008 (rather than FY2009), and finally, covering 
     children through age 18 beginning in FY2009 (rather than 
     FY2010) and thereafter.
       As under the Senate bill, the conference agreement allows 
     states to impose income-related premiums under this option. 
     But the agreement changes the aggregate amount of cost 
     sharing for families based on income levels.
       For children in families with income that does not exceed 
     200% FPL, the aggregate amount of premiums for Medicaid 
     coverage and any premium for employer-sponsored family 
     coverage (in order to cover the disabled child) plus other 
     cost-sharing cannot exceed 5% of family income. For children 
     in families with income between 200% FPL and 300% FPL, the 
     aggregate amount of premiums for Medicaid coverage and any 
     premium for employer-sponsored family coverage (in order to 
     cover the disabled child) plus other cost-sharing cannot 
     exceed 7.5% of family income.
       Finally, the conference agreement changes the effective 
     date of these provisions to January 1, 2007.
     Demonstration Projects Regarding Home and Community-based 
         Alternative to Psychiatric Residential Treatment 
         Facilities for Children (Section 6063 of the Conference 
         Agreement, Section 6043 of the Senate Bill, and no 
         provision in the House Bill)
     Current Law
       Medicaid home and community-based service (HCBS) waivers 
     authorized by Section 1915(c) of the Social Security Act 
     allows states to provide a broad range of home and community-
     based services to Medicaid beneficiaries who would otherwise 
     need the level of care provided in a hospital, nursing 
     facility, or intermediate care facility for individuals with 
     mental retardation (ICF-MR). Federal approval for these 
     waivers is contingent on the state's documentation of the 
     waiver's cost-neutrality. Cost-neutrality is met if, on 
     average, the per person cost with the HCBS waiver is no 
     higher than the cost if the person were residing in a 
     hospital, nursing home, or ICF-MR. The state determines which 
     type of institution(s) it will use to make the cost-
     neutrality calculation.
       For children with psychiatric disabilities, many states 
     provide Medicaid funding for inpatient psychiatric 
     residential treatment facilities. However, because the waiver 
     cost-neutrality calculation does not allow a comparison of 
     HCBS waiver expenditures to expenditures in these psychiatric 
     residential treatment facilities, most states have had 
     difficulty covering HCBS waiver services for children with 
     psychiatric disabilities. Four states (Indiana, Kansas, New 
     York and Vermont) have been able to offer HCBS waiver 
     services for children with psychiatric disabilities by 
     documenting the cost-neutrality of the waiver compared to the 
     state's hospital expenditures. However given the cost-
     neutrality requirement, those states that have limited the 
     use of hospitals for children with psychiatric disabilities 
     may be unable to develop HCBS waivers for this population.
     Senate Bill
       The Senate bill would authorize the Secretary to conduct 
     demonstration projects in up to 10 states during the period 
     from FY2007 through FY2011 to test the effectiveness of 
     improving or maintaining the child's functional level, and 
     cost-effectiveness of providing coverage of home and 
     community-based alternatives to psychiatric residential 
     treatment, for children enrolled in Medicaid. These 
     demonstration projects will develop home and community-based 
     services as an alternative to a psychiatric residential 
     treatment facility. However, these projects must also follow 
     the requirements of the HCBS waiver program. Specifically, 
     demonstration participants would be required to meet the 
     level of care of a psychiatric residential treatment 
     facility, and the average, per-person project expenditures 
     may not exceed the average, per-person cost of a psychiatric 
     residential treatment facility.
       The demonstration states would be selected through a 
     competitive bidding process. At the end of the demonstration 
     period, the state may allow children enrolled in the 
     demonstration project to continue receiving the Medicaid home 
     and community-based waiver services provided under the 
     demonstration; however, no new children could be added to the 
     project.
       As part of the demonstration, the fol1owing conditions 
     would apply: (1)

[[Page H12728]]

     projects must meet the same terms and conditions that apply 
     to all HCBS waivers; (2) the Secretary must ensure that the 
     projects are budget neutral; that is, total Medicaid 
     expenditures under the demonstration projects will not be 
     allowed to exceed the amount that the Secretary estimates 
     would have been paid in the absence of the demonstration 
     projects; and (3) applications for a demonstration project 
     must include an assurance to conduct an interim and final 
     evaluation by an independent third party and any reports that 
     the Secretary may require.
       This proposal would appropriate $218 million for FY2007 
     through FY2011 for the state demonstration projects and the 
     federal evaluations and report. Total expenditures for state 
     demonstration projects would not be allowed to exceed $21 
     million in FY2007, $37 million in FY2008, $49 million in 
     FY2009, $53 million in FY2010, and $57 million in FY2011. 
     Funds not expended in a given fiscal year would continue to 
     be available in subsequent fiscal years. An additional $1 
     million would be available to the Secretary to complete a 
     required interim and final evaluation of the project and 
     report the conclusions of the evaluations to the President 
     and Congress within 12 months of completing these 
     evaluations.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement follows the Senate provision.
     Development and Support of Family-to-family Health 
         Information Centers (Section 6064 of the Conference 
         Agreement, Section 6044 of the Senate Bill, and no 
         provision in the House Bill)
     Current Law
       Family-to-family health centers provide information and 
     assistance to help families of children with special health 
     care needs navigate the system of care and make decisions 
     about the needs and available supports for their child. No 
     provision in current law specifically authorizes a dedicated 
     amount of funds for these family-to-family health information 
     centers. However, since 2002, the Department of Health and 
     Human Services (HHS) has awarded approximately $6.9 million 
     to develop these information centers in 36 states under 
     various program authorities including: (1) Special Projects 
     of Regional and National Significance Program (SPRANS) of the 
     Maternal and Child Services Block Grant (Title V of the 
     Social Security Act) operated by the Health Resources 
     Services Administration (HRSA); (2) the Real Choice Systems 
     Change grant program operated by the Centers for Medicare and 
     Medicaid Services (CMS); and (3) a one-year direct 
     Congressional appropriation to an organization in Iowa. 
     Federal funding for these projects is time-limited. Except 
     for the one-year direct appropriation, state projects have 
     generally been funded for a three or four-year period. HRSA 
     intends to fund additional family-to-family health 
     information centers awarding up to $2.4 million to six 
     projects for a four-year period starting in FY2006.
     Senate Bill
       The Senate bill would increase funding under the SPRANS 
     program of Title V of the Social Security Act for the 
     development and support of new family-to-family health 
     information centers (described below). This proposal would 
     appropriate an additional $3 million for FY2007, $4 million 
     for FY2008, and $5 million for FY2009 for this new purpose. 
     For each of fiscal years 2010 and 2011, the bill would 
     authorize to be appropriated to the Secretary $5 million for 
     this purpose. Funds would remain available until expended.
       The family-to-family health information centers would: (1) 
     assist families of children with disabilities or special 
     health care needs to make informed choices about health care 
     so as to promote good treatment decisions, cost-
     effectiveness, and improved health outcomes for such 
     children; (2) provide information regarding the health care 
     needs of, and resources available for children with 
     disabilities or special health care needs; (3) identify 
     successful health delivery models; (4) develop a model for 
     collaboration between families of such children and health 
     professionals; (5) provide training and guidance with regard 
     to the care of such children; and (6) conduct outreach 
     activities to the families of such children, health 
     professionals, schools, and other appropriate entities and 
     individuals. The family-to-family health information center 
     would be staffed by families who have expertise in public and 
     private health care systems and by health professionals.
       The Secretary would be required to develop family-to-family 
     health information centers in at least 25 states in FY2007, 
     40 states in FY2008, and all states in FY2009.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement follows the Senate provision.
     Restoration of Medicaid Eligibility for Certain SSI 
         Beneficiaries (Section 6065 of the Conference Agreement, 
         Section 6045 of the Senate Bill, and no provision in the 
         House Bill)
     Current Law
       SSI and Medicaid eligibility is effective on the later of 
     (1) the first day of the month following the date the 
     application is filed, or (2) the first day of the month 
     following the date that the individual is determined 
     eligible.
     Senate Bill
       The Senate bill would extend Medicaid eligibility to 
     persons who are under age 21 and who are eligible for SSI, 
     effective on the later of: (1) the date the application was 
     filed, or (2) the date SSI eligibility was granted. This 
     provision would be effective one year after the date of 
     enactment.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement includes the Senate bill 
     provision.

    Subchapter B--Money Follows the Person Rebalancing Demonstration

     Money Follows the Person Rebalancing Demonstration (Section 
         6071 of the Conference Agreement, Section 6061 of the 
         Senate Bill, and no provision in the House Bill)
     Current law
       Under Medicaid, states can offer a variety of home and 
     community-based services to Medicaid beneficiaries who need 
     long-term care. Some of these services may be 
     offered statewide as part of the Medicaid state plan 
     (e.g., home health services and personal care services). 
     Other services may be offered through a home and 
     community-based services (HCBS) waiver under Section 
     1915(c) of the Social Security Act. These waivers allow 
     states to provide a broad range of home and community-
     based services to individuals who would otherwise require 
     the level of care provided in certain types of 
     institutions (i.e., a hospital, nursing facility or 
     intermediate care facility for individuals with mental 
     retardation (ICF-MR)). For example, HCBS waiver services 
     could include respite, personal care, adult day care, or 
     therapy. As part of the HCBS waiver, states have the 
     ability to define the specific services that will be 
     offered, to target a specific population (e.g., elderly 
     individuals) and to limit the number of individuals who 
     can participate in the waiver.
       Approval for an HCBS waiver is contingent on a state 
     documenting the cost-neutrality of the waiver. Cost-
     neutrality is met if the average per person cost under the 
     HCBS waiver is no higher than the average per person cost of 
     receiving care in a hospital, nursing facility or ICF-MR. The 
     state determines which type of institution(s) it will use to 
     make the cost-neutrality calculation.
       Under current law, Medicaid beneficiaries who are residents 
     of an institution (such as a nursing home) and who would like 
     to leave that institution would be entitled to receive those 
     Medicaid services covered by the Medicaid state plan. 
     However, individuals may not be able to access the broader 
     range of services under an HCBS waiver because many states 
     have waiting lists for the waiver.
       Medicaid expenditures for services (including the Medicaid 
     state plan and HCBS waiver) are generally shared between the 
     federal and state governments. In FY2003 (the latest 
     expenditure data available), the federal government covered 
     59% of the cost of services; states covered the remaining 41% 
     of expenditures. The specific federal share of a state is 
     based on the state's federal medical assistance percentage 
     (FMAP) rate which can range from 50% to 83%.
     Senate Bill
       The Senate provision would authorize the Secretary to 
     conduct a demonstration project in states to increase the use 
     of home and community-based care instead of institutions. 
     States awarded a demonstration would receive 90% of the costs 
     of home and community-based, long-term care services (under a 
     HCBS waiver and/or the state plan) for 12 months following a 
     demonstration participant's transition from an institution 
     into the community. In a given fiscal year, funding would be 
     capped at the amount of a state's grant award. After the 12 
     months of grant funding, the state would be required to 
     continue providing services through a Medicaid home and 
     community-based long-term care program, as described below.
       Individuals will be eligible to participate in the 
     demonstration if they meet the following criteria: they are 
     residents of a hospital, nursing facility, ICF-MR, or an 
     institution for mental disease (IMD) (but only to the extent 
     that the IMD benefit is offered as part of the existing state 
     Medicaid plan); they have resided in the facility for no less 
     than six months or for a longer time period specified by the 
     state (up to a maximum of two years); they are receiving 
     Medicaid benefits for the services in this facility; and they 
     will continue to require the level of care of the facility 
     but for the provision of HCBS services.
       The state's application for a demonstration project will be 
     required to include, at a minimum, the following information: 
     (1) assurance that the project was developed and will be 
     operated through a public input process; (2) assurance that 
     the project will operate in conjunction with an existing 
     Medicaid home and community-based program; (3) the duration 
     of the project, which must be for at least two consecutive 
     fiscal years in a five-year period starting in FY2009; (4) 
     the service area, which may be statewide or less-than-
     statewide; (5) the target groups and the projected number to 
     be enrolled and the estimated total expenditures for each 
     fiscal year; (6) assurance that the project defers to 
     individual choice and that the state will continue services 
     for participants after the demonstration ends, as long as the 
     state offers such services and the individual remains 
     eligible; (7) information on recent Medicaid expenditures for 
     long-term care and home and

[[Page H12729]]

     community-based services and proposed methods to increase the 
     state's investment in home and community-based services; (8) 
     methods the state will use to eliminate barriers to paying 
     for long-term care services for participants in the 
     setting(s) of their choice; (9) assurance that the state will 
     meet a maintenance of effort for Medicaid HCBS expenditures 
     and will continue to operate a HCBS waiver that meets the 
     statutory requirements for cost-neutrality.
       A state will also be required to describe a plan for 
     quality assurance and improvement of HCBS services under 
     Medicaid; any requested waivers of Medicaid law; if 
     applicable, the process for participants to self-direct his 
     or her own services (meeting standards outlined in this 
     proposal); and compliance with reports and evaluation, as 
     required by the Secretary.
       In addition to evaluating the merits of a state's 
     application, in selecting demonstration projects, the 
     Secretary will be required to consider a national balance of 
     target groups and geographic distribution and to give a 
     preference to states that cover multiple groups or offer 
     project participants the opportunity to self-direct their 
     services. The Secretary will be authorized to waive certain 
     sections of Medicaid law to achieve the purpose of the 
     demonstration.
       To qualify for grant awards after year one, states will be 
     required to meet numerical benchmarks measuring the increased 
     investment in services under this proposal and the number of 
     individuals transitioned into the community. States will also 
     be required to demonstrate that they are assuring the health 
     and welfare of project participants. For states that do not 
     meet these requirements, the Secretary will be required to 
     rescind the grant award for future grant periods and will be 
     allowed to re-award unused funding.
       The proposal would require the Secretary to provide 
     technical assistance and oversight to state grantees and may 
     use up to $2.4 million of the amounts appropriated for the 
     portion of fiscal year 2009 that begins on January 1, 2009, 
     and ends on September 30, 2009, and for fiscal year 2010, to 
     carry out these activities during the period beginning on 
     January 1, 2009 and ending on September 30, 2013. The 
     Secretary would also be required to conduct a national 
     evaluation and report its findings to the President and 
     Congress no later than September 30, 2012 and may use up to 
     $1.1 million each year from FY2010 through FY2013 to carry 
     out these activities.
       This proposal would appropriate $250 million for the 
     portion of FY2009 which begins on January 1, 2009, and ends 
     on September 30, 2009; $300 million in FY2010; $350 million 
     in FY2011; $400 million in FY2012; and $450 million in FY2013 
     to carry out the demonstration project. Funds not awarded to 
     states in a given fiscal year would continue to be available 
     in subsequent fiscal years through September 30, 2013.
       Payments for home and community-based long-term care 
     services under the demonstration project would be in lieu of 
     payment with respect to expenditures that could otherwise be 
     paid for by Medicaid. However, if a state exhausts its grant 
     funding in a particular year, the state is not prevented from 
     using Medicaid to pay for home and community-based long term 
     care services. Finally, a state that does not use all of 
     its funding in a given fiscal year will continue to have 
     access to that funding for four subsequent fiscal years.
     House Bill
       No provision.
     Conftrence Agreement
       The conference agreement follows the Senate provision, but 
     makes several changes to the Senate bill. First, to be 
     eligible an individual must continue to require the level of 
     care in an institution. However, in any case where a state 
     would apply a more stringent level of care standard as a 
     result of implementing a Medicaid state plan option under 
     section 1915(I), established under this conference agreement, 
     the individual must continue to require the level of care 
     which had resulted in admission to the institution.
       A state must assure that it will continue services for 
     participants after the demonstration ends, as long as the 
     state offers such services and the individual remains 
     eligible. If the state chooses to apply a more stringent 
     level of care as a result of covering the state plan option 
     under Section 1915(I), established under this conference 
     agreement, the individual must continue to meet the 
     requirement for the level of care that had resulted in his or 
     her admission to the institution.
       In addition, those states awarded a demonstration would 
     receive an enhanced FMAP rate (referred to as the ``MFP-
     enhanced FMAP'') equal to the current FMAP rate for the state 
     increased by a number of percentage points equal to 50% of 
     the difference between 100% and the normal FMAP rate. 
     However, in no case can the FMAP rate exceed 90% for a state. 
     The state will receive the MFP-enhanced FMAP for the costs of 
     home and community-based, long-term care services for 12 
     months following a demonstration participant's transition 
     from an institution into the community.
       Finally, demonstration grants would be awarded starting in 
     2007, instead of 2009 which changes all relevant dates within 
     this provision including:
        The duration of the project must be for at least 
     two consecutive fiscal years in a five-year period starting 
     in FY2007; and
        The Secretary would be able to use up to $2.4 
     million of the amounts appropriated for the portion of fiscal 
     year 2007 that begins on January 1, 2007, and ends on 
     September 30, 2007, and for fiscal year 2008, to carry out 
     technical assistance and quality assurance activities during 
     the period beginning on January 1, 2007 and ending on 
     September 30, 2011; and
        The Secretary will also be required to report 
     evaluation and findings to the President and Congress no 
     later than September 30, 2011 and may use up to $1.1 million 
     each year from FY2008 through FY2011 to carry out these 
     activities; and
        The provision would appropriate $250 million for 
     the portion of FY2007 which begins on January 1, 2007, and 
     ends on September 30, 2007; $300 million in FY2008; $350 
     million in FY2OO9; $400 million in FY2010; and $450 million 
     in FY2011 to carry out the demonstration project; and
        Funds not awarded to states in a given fiscal year 
     would continue to be available in subsequent fiscal years 
     through September 30, 2011.

                      Subchapter C--Miscellaneous

     Medicaid Transformation Grants (Section 6081 of the 
         Conference Agreement, no provision in the Senate Bill, 
         and Section 3143 of the House Bill)
     Current Law
       Section 1903(a) of the Social Security Act describes the 
     level of federal reimbursement available to states for 
     various Medicaid program functions. The federal medical 
     assistance percentage (FMAP) is the rate at which states are 
     reimbursed for most Medicaid service expenditures. It is 
     based on a formula that provides higher reimbursement to 
     states with lower per capita incomes relative to the national 
     average (and vice versa); it has a statutory minimum of 50% 
     and maximum of 83%. The federal reimbursement rate for 
     Medicaid administrative expenditures does not vary by state 
     and is generally 50%, but certain administrative functions 
     receive enhanced (usually 75%) reimbursement.
     Senate Bill
       No provision.
     House Bill
       Under the House bill, in addition to the normal federal 
     Medicaid reimbursement received by states under section 1903( 
     a), the Secretary of HHS would provide for payments to states 
     for the adoption of innovative methods to improve the 
     effectiveness and efficiency in providing medical assistance 
     under Medicaid.
       Examples of innovative methods for which such funds may be 
     used include: (1) methods for reducing patient error rates 
     through the implementation and use of electronic health 
     records, electronic clinical decision support tools, or e-
     prescribing programs, (2) methods for improving rates of 
     collection from estates of owed to Medicaid, (3) methods for 
     reducing waste, fraud, and abuse under Medicaid, such as 
     reducing improper payment rates as measured by the annual 
     payment error rate measurement (PERM) project rates, (4) 
     implementation of a medication risk management program as 
     part of a drug use review program, and (5) methods for 
     reducing, in clinically appropriate ways, Medicaid 
     expenditures for covered outpatient drugs, particularly in 
     the categories of greatest drug utilization, by increasing 
     the utilization of generic drugs through the use of education 
     programs and other incentives to promote greater use of 
     generics.
       No payments would be made to a state unless the state 
     applied to the Secretary of HHS for such payments in a form, 
     manner, and time specified by the Secretary. Payments would 
     be made under such terms and conditions consistent with the 
     subsection as the Secretary prescribes. Payment to a state 
     under the subsection would be conditioned on the state 
     submitting to the Secretary an annual report on the programs 
     supported by such payment. The reports would include 
     information on: (1) the specific uses of such payment, (2) an 
     assessment of the quality improvements and clinical outcomes 
     under such programs, and (3) estimates of the cost savings 
     resulting from such programs.
       Total payments would equal and not exceed $50 million in 
     each of FY2007 and FY2008. The Secretary would specify a 
     method for allocating the funds among states. Such method 
     would provide preference for states that design programs that 
     target health providers that treat significant numbers of 
     Medicaid beneficiaries. The method would also allocate at 
     least 25% of the funds among states whose populations as of 
     July 1, 2004 were more than 105% of their populations as of 
     April 1, 2000.
     Conference Agreement
       The conference agreement follows the House bill, but would 
     increase total payments to equal and not exceed $75 million 
     in each of FY2007 and FY2008. The agreement also adds, as an 
     additional option for use of funds, methods for improving 
     access to primary and specialty physician care for the 
     uninsured using integrated university-based hospital clinic 
     systems. Conferees believe that it is important to develop 
     new models to meet the needs of the uninsured. University 
     based physicians are uniquely qualified to assume this task. 
     Bringing the resources of academia and health care system 
     together to serve the poor and medically needy will create 
     new opportunities to develop strategies that can be used on a 
     broader scale.

[[Page H12730]]

     Improved Enforcement of Documentation Requirements (Section 
         6082 of the Conference Agreement, no provision in the 
         Senate Bill, and Section 3145 of the House Bill)
     Current Law
       To be eligible for the full range of benefits offered under 
     Medicaid, an individual must be a citizen or national of the 
     United States or a qualified alien (e.g., a legal permanent 
     resident, refugee, alien granted asylum or related relief) 
     who meets all other Medicaid program eligibility criteria. 
     Non-qualified aliens (e.g., those who are unauthorized or 
     illegally present, non-immigrants admitted for a temporary 
     purpose such as education or employment, short-term parolees) 
     who would otherwise be eligible for Medicaid except for their 
     immigration status may only receive Medicaid care and 
     services that are necessary for the treatment of an emergency 
     medical condition and are not related to an organ transplant 
     procedure.
       As a condition of an individual's eligibility for Medicaid 
     benefits, Section 1137(d) of the Social Security Act requires 
     a state to obtain a written declaration, under penalty of 
     perjury, stating whether the individual is a citizen or 
     national of the United States. If an individual declares that 
     he or she is a citizen or national, the state is not required 
     to obtain additional documentary evidence but may choose to 
     do so. According to a 2005 report from the Department of 
     Health and Human Services' Office of Inspector General, 46 
     states and the District of Columbia allow or sometimes allow 
     self-declaration of United States citizenship, while four 
     states require Medicaid applicants to submit documentary 
     evidence to verify citizenship statements.
       If an individual declares that he or she is not a citizen 
     or national, the individual must declare that he or she is a 
     qualified alien and must present: (1) alien registration 
     documentation or other proof of immigration registration from 
     the Department of Homeland Security's United States 
     Citizenship and Immigration Services Bureau (DHS/USCIS, 
     formerly the Immigration and Naturalization Service) or (2) 
     other documents determined by the state to constitute 
     reasonable evidence of satisfactory immigration status. If an 
     individual presents DHS/USCIS documentation, the state must 
     verify the individual's immigration status with DHS/USCIS 
     through the automated Systematic Alien Verification for 
     Entitlements (SAVE) system, or by using an alternative 
     verification system approved by the Secretary of Health and 
     Human Services. States receive 100% federal reimbursement for 
     the operation of such systems.
     Senate Bill
       No provision.
     House Bill
       Under the House bill, states would be prohibited from 
     receiving federal reimbursement for medical assistance 
     provided under Medicaid to an individual who has not provided 
     satisfactory documentary evidence of citizenship or 
     nationality.
       Such evidence would include one of the following documents:
        a United States passport;
        Form N-550 or N-570 (Certificate of 
     Naturalization);
        Form N-560 or N-561 (Certificate of United States 
     Citizenship);
        such other document that the Secretary may 
     specify, by regulation, that provides proof of United States 
     citizenship or nationality and that provides a reliable means 
     of documentation of personal identity.
       Satisfactory documentary evidence would also include a 
     document from each of the fol1owing lists:
        a certificate of birth in the United States;
        Form FS-545 or Form DS-1350 (Certificate of Birth 
     Abroad);
        Form 1-97 (United States Citizen Identification 
     Card);
        Form FS-240 (Report of Birth Abroad of a Citizen 
     of the United States); or
        such other document as the Secretary may specify 
     (excluding a document specified by the Secretary as described 
     above) that provides proof of United States citizenship or 
     nationality;
       AND
        any identity document described in section 
     274A(b)(l)(D) of the Immigration and Nationality Act; or
        any other documentation of personal identity of 
     such other type as the Secretary finds, by regulation, 
     provides a reliable means of identification.
       The documentary requirements would not apply to an alien 
     who is: (1) eligible for Medicaid and is entitled to or 
     enrol1ed for Medicare benefits, (2) eligible for Medicaid on 
     the basis of receiving Supplemental Security Income benefits, 
     or (3) eligible for Medicaid on such other basis as the 
     Secretary may specify under which satisfactory documentary 
     evidence of citizenship or nationality had been previously 
     presented.
       The provision would apply to determinations of initial 
     eligibility for Medicaid made on or after July 1, 2006, and 
     to redeterminations made after such date in the case of 
     individuals for whom the new documentary requirements were 
     not previously met.
     Conference Agreement
       The conference agreement follows the House bill, but allows 
     a state-issued driver's license or other identity document 
     described in section 274(A)(b)(1)(D) of the Immigration and 
     Nationality Act as satisfactory evidence, but only if the 
     state issuing the license or such document requires proof of 
     U.S. citizenship before issuance or obtains a Social Security 
     number from the applicant and verifies before certification 
     that such number is valid and assigned to an applicant who is 
     a citizen.
     Health Opportunity Accounts (Section 6083 of the Conference 
         Agreement, no provision in the Senate Bill, and Section 
         3134 of the House Bill)
     Current Law
       Medicaid is a joint federal-state entitlement program that 
     finances health care coverage for certain low-income 
     families, children, pregnant women, and individuals who are 
     aged or disabled. To qualify for Medicaid, an individual must 
     meet both categorical and financial eligibility requirements. 
     The specific income and resource limitations that apply to 
     each eligibility group are set through a combination of 
     federal parameters and state definitions. Each state designs 
     and administers its own program under broad federal 
     guidelines. Variation exists among states in eligibility, 
     covered services, and the delivery of, and reimbursement for 
     services. States that wish to experiment with new approaches 
     for providing health care coverage that promote the 
     objectives of the Medicaid program may seek approval for 
     Section 1115 demonstration waivers.
       Medicaid's basic benefits rules require all states to 
     provide certain ``mandatory'' services as listed in Medicaid 
     statute. Federal matching payments are also available for 
     optional services if states choose to include them in their 
     Medicaid plans. States define the specific features of each 
     service to be provided under that plan within broad federal 
     guidelines including: (1) Amount, duration, and scope. Each 
     covered service must be sufficient in amount, duration, and 
     scope to reasonably achieve its purpose. (2) Comparability. 
     With certain exceptions, services available to any 
     categorically needy beneficiary in a state must be equal in 
     amount, duration, and scope to those available to any other 
     categorically needy beneficiary in the state. Similarly, 
     services available to any medically needy beneficiary in a 
     state must be equal in amount, duration, and scope to those 
     available to any other medically needy beneficiary in the 
     state, (3) Statewideness. State plan services must be covered 
     throughout an entire state, and (4) Freedom of choice. With 
     certain exceptions, a state's Medicaid plan must allow 
     recipients freedom of choice among health care providers or 
     managed care entities participating in Medicaid.
       States may genera11y impose nominal cost-sharing on 
     beneficiaries, with certain exceptions. They are precluded 
     from imposing cost sharing on services for children under 18, 
     services related to pregnancy, family planning or emergency 
     services, services provided to nursing facility residents who 
     are required to spend all of their income for medical care 
     except for a personal needs allowance, and services furnished 
     to individuals receiving hospice care. States may require 
     nominal copayments, coinsurance, or deductibles within 
     federal limits from other beneficiaries or for other 
     services. Beneficiaries may be charged only one type of cost 
     sharing per service. Providers may collect cost sharing 
     amounts from beneficiaries and generally are not to be 
     reimbursed by the state if they are unsuccessful in 
     collecting cost sharing from beneficiaries. Providers 
     generally may not deny services if beneficiaries are unable 
     to pay cost sharing amounts.
       For the most part, states establish their own rates to pay 
     Medicaid providers for services. By regulation these rates 
     must be sufficient to enlist enough providers so that covered 
     services will be available to Medicaid beneficiaries at least 
     to the extent they are available to the general population in 
     a geographic area. All providers are required to accept 
     payments under the program as payment in full for covered 
     services except where states require nominal cost-sharing by 
     beneficiaries.
     Senate Bill
       No provision.
     House Bill
       The House bill would require the Secretary of HHS to 
     establish no more then 10 demonstration programs within 
     Medicaid for health opportunity accounts (HOA), effective 
     January 1, 2006. While demonstration programs described in 
     the House bill have some of the elements of a Section 1115 
     demonstration waiver, ``Health Opportunity Accounts,'' as 
     defined by the provision, are not explicitly authorized under 
     current law.
       If successful during the initial 5-year test period, other 
     demonstrations would be approved. HOAs would be used to pay 
     (via electronic funds transfers) health care expenses 
     specified by the state; payments could be restricted to 
     licensed or otherwise authorized providers as well as to 
     items and services that are medically appropriate or 
     necessary. Eligibility for HOAs would be determined by the 
     state, though individuals age 65 or older, or who are 
     disabled, pregnant, or receiving terminal care or long-term 
     care, would be among those who would be precluded from 
     participating. Once account holders were no longer eligible 
     for Medicaid they could continue to make HOA withdrawals 
     under state-specified conditions, though accounts could then 
     also be used to pay for health insurance or, at state option, 
     for job training or education. Among other things, state 
     demonstration programs would have to make patients aware of 
     the high cost of medical care,

[[Page H12731]]

     provide incentives for them to seek preventive care, and 
     reduce inappropriate uses of health care.
       Demonstration participants would have both an HOA and 
     coverage for medical items and services that, after an annual 
     deductible is met, were available under the existing Medicaid 
     state plan and/or Section 1115 waiver authorities. HOA 
     contributions could be made by the state or by other persons 
     or entities, including charitable organizations. Including 
     federal shares, state contributions generally could not 
     exceed $2,500 for each adult and $1,000 for each child.
       Demonstration participants would be required to meet an 
     annual deductible before they would be permitted to access 
     coverage for medical items and services available under the 
     existing Medicaid state plan and/or Section 1115 waiver 
     authorities. The deductible would have to be at least 100%, 
     but no more than 110%, of the annual state contributions to 
     the HOA. Both the deductible and the maximum for out-of-
     pocket cost-sharing could vary among families. The deductible 
     need not apply to preventive care.
       The House bill would require demonstration participants to 
     be able to obtain services from Medicaid providers or managed 
     care organizations at the same payment rates that would be 
     applicable if the coverage deductible did not apply, or from 
     any provider for payment rates not exceeding 125% of those 
     rates.
     Conference Agreement
       The House bill is agreed to with the following 
     modifications. The conference agreement requires the 
     Secretary of HHS to establish no more then 10 demonstration 
     programs within Medicaid for health opportunity accounts 
     (BOA), effective January 1, 2007. If successful (based on 
     cost-effectiveness, quality of care and other Secretary-
     specified criteria) during the initial 5-year test period, 
     such demonstrations may be extended or made permanent, and 
     other demonstrations may be approved. Not later than 3 months 
     prior to the end of the initial 5-year test period, the 
     conference agreement requires the Comptroller General of the 
     Unites States to submit an evaluation of the demonstration 
     programs to Congress.
       HOAs are used to pay (via electronic funds transfers) 
     health care expenses specified by the state; payments could 
     be restricted to licensed or otherwise authorized providers 
     as well as to items and services that are medically 
     appropriate or necessary. Eligibility for HOAs is determined 
     by the state, though individuals age 65 or older, or who are 
     disabled, pregnant, or receiving terminal care or long-term 
     care, are among those who are precluded from participating. 
     Once account holders are no longer eligible for Medicaid they 
     may continue to make HOA withdrawals under state-specified 
     conditions for a period of three years, though no additional 
     account contributions will be made and the account balances 
     will be reduced by 25%. For ineligible individuals who 
     participated in the demonstration program for at least one 
     year, accounts could then also be used to pay for health 
     insurance or, at state option, for additional expenditures 
     such as job training or education. The conference agreement 
     adds a 1-year moratorium for reenrollment, whereby eligible 
     individuals disenrolled from the state demonstration programs 
     are not permitted to reenroll for a full year from such 
     individual's disenrollment date. Among other things, state 
     demonstration programs are required to make patients aware of 
     the high cost of medical care, provide incentives for them to 
     seek preventive care, and reduce inappropriate uses of health 
     care.
       The conference agreement requires demonstration 
     participants have both an HOA and coverage for medical items 
     and services that, after an. annual deductible is met, are 
     available under the existing Medicaid state plan and/or 
     Section 1115 waiver authorities. HOA contributions could be 
     made by the state or by other persons or entities, including 
     charitable organizations as permitted under current law. 
     Including federal shares, state contributions generally may 
     not exceed $2,500 for each adult and $1,000 for each child.
       The conference agreement requires demonstration 
     participants to meet an annual deductible before they are 
     permitted to access coverage for medical items and services 
     available under the existing Medicaid state plan and/or 
     Section 1115 waiver authorities. The deductible must be at 
     least 100%, but no more than 110%, of the annual state 
     contributions to the HOA without regard to state-specified 
     limits on the HOA balance. Both the deductible and the 
     maximum for out-of-pocket cost-sharing could vary among 
     families. The deductible need not apply to preventive care.
       The conference agreement requires demonstration 
     participants to be able to obtain services from Medicaid 
     providers, or Medicaid managed care organizations at the same 
     payment rates that are applicable if the coverage deductible 
     did not apply, or from any other provider or managed care 
     organization at payment rates not exceeding 125% of such 
     Medicaid provider payment rates. The conference agreement 
     requires that the payment rates for Medicaid providers or 
     managed care organizations be computed without regard to any 
     cost sharing that are otherwise applicable under current law 
     (as modified by the conference agreement).
     State Option to Establish Non-emergency Medical 
         Transportation Program (Section 6084 of the Conference 
         Agreement, no provision in the Senate Bill, and Section 
         3125 of the House Bill)
     Current Law
       Federal regulations require states to ensure necessary 
     transportation for beneficiaries to and from providers. When 
     states offer transportation as an optional benefit, federal 
     reimbursement uses the federal assistance medical percentage 
     (FMAP) rate which varies by state and ranges from 50% to 83%. 
     FMAP reimbursement is only available if transportation is 
     furnished by a provider to whom a direct payment can be made. 
     Beneficiaries must have freedom of choice among 
     transportation providers and such services must be equal in 
     amount, duration and scope for all beneficiaries classified 
     as categorically needy (CN). This comparability requirement 
     also applies among medically needy (MN) groups. Other 
     arrangements, such as payments to a broker who manages and 
     pays transportation vendors, must be c1aimed as an 
     administrative expense rather than as a benefit. Such costs 
     are reimbursed by the federal government at 50%, and fewer 
     federal requirements must be met.
     Senate Bill
       No provision.
     House Bill
       The House bill would allow states to establish a non-
     emergency medical transportation brokerage program for 
     beneficiaries who need access to medical care but have no 
     other means of transportation. The state would not be 
     required to provide comparable services for all Medicaid 
     enrollees, nor freedom of choice among providers. The program 
     would include wheelchair van, taxi, stretcher car, bus passes 
     and tickets, and other transportation methods deemed 
     appropriate by the Secretary, and could be conducted under 
     contract with a broker who: (1) is selected through a 
     competitive bidding process that assesses the broker's 
     experience, references, qualifications, resources and costs; 
     (2) has oversight procedures to monitor beneficiary access 
     and complaints and to ensure that transport personnel are 
     licensed, qualified, competent and courteous; (3) is subject 
     to regular auditing by the state to ensure quality of 
     services and adequacy of beneficiary access to medical care; 
     and (4) complies with requirements related to prohibitions on 
     referrals and conflict of interest established by the 
     Secretary. These provisions would be effective upon 
     enactment.
       The Office of the Inspector General (OIG) of DHHS would be 
     required to submit a report to Congress examining the non-
     emergency medical transportation brokerage program 
     implemented under this provision no later than January 1, 
     2007. This report must include findings regarding conflicts 
     of interest and improper utilization of transportation 
     services under this program, as well as recommendations for 
     improvements.
     Conference Agreement
       The conference agreement includes the House bill, and 
     specifies that non-emergency medical transportation brokerage 
     programs do not have to be available statewide.
     Extension of Transitional Medical Assistance (TMA) and 
         Abstinence Education Program (Section 6085 of the 
         Conference Agreement, no provision in the Senate Bill, no 
         provision in the House Bill)
     Current Law
       States are required to continue Medicaid benefits for 
     certain low-income families who would otherwise lose coverage 
     because of changes in their income. This continuation of 
     benefits is known as transitional medical assistance (TMA). 
     States are currently required to provide TMA to families 
     losing eligibility for Medicaid under two scenarios: one 
     related to child or spousal support, and one related to work.
       First, under 1931(c) of the Social Security Act, states 
     must provide four months of TMA coverage to families losing 
     Medicaid eligibility due to increased child or spousal 
     support. This is a permanent provision of law with no sunset 
     date.
       Second, states are required to provide TMA to families 
     losing Medicaid eligibility for work-related reasons. While 
     Section 1902(e)(1) of the Social Security Act permanently 
     requires states to provide four months of TMA to families 
     losing Medicaid eligibility due to an increase in hours of 
     work or income from employment, the Family Support Act (FSA) 
     of 1988 expanded state TMA requirements under Section 1925 of 
     the Social Security Act. As a result, states are currently 
     required to provide at least six, and up to 12, months of TMA 
     coverage to families losing Medicaid eligibility due to 
     increased hours of work or income from employment, as well as 
     to families who lose eligibility due to the loss of a time-
     limited earned income disregard (such disregards have the 
     effect of increasing the income level at which a family may 
     qualify for Medicaid). FSA originally authorized Section 1925 
     to replace the four-month requirement in Section 1902(e)(1) 
     through FY1998. However, the sunset date for Section 1925 has 
     been extended a number of times, most recently through 
     December 31, 2005.
       Under Section 510 of the Social Security Act, federal law 
     appropriated $50 million annually for each of the fiscal 
     years 1998-2003 for matching grants to states to provide 
     abstinence education and, at state option, mentoring, 
     counseling, and adult supervision to promote abstinence from 
     sexual activity, with a focus on groups that are most likely 
     to bear children out-of-wedlock. Funds must be requested by 
     states when they apply for

[[Page H12732]]

     Maternal and Child Health Services (MCR) Block Grant funds 
     and must be used exclusively for the teaching of abstinence. 
     States must match every $4 in federal funds with $3 in state 
     funds.
       A state's allotment of abstinence education block grant 
     program funding is based on the proportion of low-income 
     children in the state as compared to the national total. 
     Funding for the abstinence education block grant has been 
     extended through December 31, 2005 by temporary extension 
     measures.
     Senate Bill
       No provision.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement extends TMA under Section 1925 of 
     the Social Security Act through December 31, 2006. It also 
     extends the $50 million annual appropriation for the 
     abstinence education block grant program through fiscal year 
     2006 and provides an additional $12.5 million for the program 
     for the first quarter of fiscal year 2007 (i.e., through 
     December 31, 2006).
     Emergency Services Furnished by Non-Contract Providers for 
         Medicaid Managed Care Entities (Section 6086 of the 
         Conference Agreement, no provision in the Senate Bill, 
         and Section 3147 of the House Bill)
     Current Law
       Medicaid law provides certain protections for beneficiaries 
     enrolled in managed care, including assuring coverage of 
     emergency services under each managed care contract awarded 
     by the state.
     Senate Bill
       No provision.
     House Bill
       A Medicaid provider that does not have a contract with a 
     Medicaid managed care entity (MCE) that furnishes emergency 
     care to a beneficiary enrolled with that MCO must accept as 
     payment in full the amount otherwise applicable outside of 
     managed care (e.g., in the fee-for-service setting) minus any 
     payments for indirect costs of medical education and direct 
     costs of graduate medical education. The effective date of 
     this provision would be January 1, 2007.
     Conference Agreement
       The conference agreement includes the House bill, but 
     clarifies that the fee-for-service rate is the maximum 
     payment rate. Also, in a state where rates paid to hospitals 
     under the state plan are negotiated by contract and not 
     publicly released, the payment amount applicable under this 
     provision must be the average contract rate that would apply 
     under the state plan for general acute care hospitals or the 
     average contract rate that would apply under the plan for 
     tertiary hospitals.

                           Subtitle B--SCHIP

     Additional allotments to eliminate fiscal year 2006 funding 
         shortfalls (Section 6101 Subsection a of the Conference 
         Agreement, Section 6051 Subsection a of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       In general, funds for the SCHIP program are authorized and 
     appropriated for FY1998 through FY2007. From each year's 
     appropriation, a state is allotted an amount detennined by a 
     formula set in law. Federal funds not drawn from a state's 
     allotment by the end of each fiscal year continue to be 
     available to that state for two additional fiscal years. At 
     the end of the three-year period, unspent funds from the 
     original allotment are reallocated in ways that vary 
     depending on the fiscal year. The original SCHIP law, (i.e., 
     BBA97), specifies that only those states that spend all of 
     their original allotment by the applicable three-year 
     deadline would receive redistributed funds from the other 
     states' unspent allotments, based on a process determined by 
     the Secretary of Health and Human Services (HHS); and these 
     redistributed funds would be available for one year. However, 
     later laws (i.e., P.L. 106-554 and P.L. 108-74) overrode how 
     the reallocation of unspent FY1998 to FY2001 original 
     allotments would occur. The redistribution of unspent FY2002 
     SCHIP original allotments was determined by the Secretary of 
     HHS in accordance with the default redistribution provision 
     in BBA97.
       Under current law, unspent original allotments from FY2003 
     forward are to be redistributed according to the original 
     BBA97 methodology. That is, redistributed funds will go only 
     to those states that spend all of their original allotments 
     by the applicable three-year deadline, with the redistributed 
     amounts determined by the Secretary of HHS and made available 
     for one year only.
     Senate Bill
       In general, the Senate bill would reduce the period of 
     availability of the FY2004 and FY2005 original allotments 
     from three years to two, and would specify rules for the 
     reallocation of unspent FY2003, FY2004, and FY2005 SCHIP 
     original allotments. The reallocated FY2003 and FY2004 funds 
     would be available in FY2006; the reallocated FY2005 funds 
     would be available in FY2007.
       In FY2006, the Senate bill would require that unspent 
     FY2003 original allotments remaining at the end of FY2005 
     (after a set-aside of 1.05% of the total unspent FY2003 funds 
     for the territories) would be redistributed to states with an 
     initial projected FY2006 shortfall. The initial projected 
     shortfall is the amount by which a state's estimated federal 
     SCHIP expenditures in FY2006 would exceed the amounts 
     available from the state's FY2005 and FY2006 original 
     allotments. Each state with an initial projected shortfall 
     would receive a portion of the available unspent FY2003 
     original allotments in proportion to its contribution to the 
     total pool of such shortfalls. From the 1.05% territory set-
     aside, each territory would receive an amount in proportion 
     to its contribution to the total pool of FY2003 original 
     allotments for the territories.
       Also in FY2006, the Senate bill would require that the 
     territories receive a set-aside of 1.05% of the total unspent 
     FY2004 original allotments available at the end of FY2005. 
     Described states would be permitted to extend the use of 
     their unspent FY2004 original allotments in an amount equal 
     to the shortfall still remaining after receiving 
     redistributed FY2003 funds. Described states would be defined 
     as states that: (1) spent all FY2003 original allotments by 
     the end of FY2005, (2) did not spend all of their FY2004 
     original allotment by the end of FY2005, and (3) reported an 
     initial projected FY2006 shortfall. After the set-aside for 
     the territories as well as the reduction of FY2004 extended 
     funds for the described states, the remaining unspent FY2004 
     funds would be available to states with a net projected 
     FY2006 shortfall, defined as each state's initial projected 
     shortfall reduced by the redistributed FY2003 funds it 
     received and by the extended FY2004 funds if it is a 
     described state. Each state with a net projected shortfall 
     would receive a redistribution of FY2004 funds to cover its 
     net projected shortfall. Any remaining FY2004 unspent 
     original allotments would then be extended proportionally to 
     states that did not spend their FY2004 allotments by the end 
     of the two-year period of availability. From the 1.05% 
     territory set-aside, each territory would receive an amount 
     in proportion to its contribution to the total pool of FY2004 
     original allotments for the territories.
       In FY2007, the Senate bill would require that the 
     territories receive a set-aside of 1.05% of the total unspent 
     FY2005 original allotments available at the end of FY2006. 
     Described states would be permitted to extend the use of 
     their unspent FY2005 original allotments in an amount equal 
     to their initial projected FY2007 shortfall. The initial 
     projected shortfall is the amount by which a state's 
     estimated federal SCHIP expenditures for FY2007 exceeds the 
     amount available from the state's FY2006 and FY2007 original 
     allotments. Described states would be defined as states that: 
     (1) did not spend all of their FY2005 original allotment by 
     the end of FY2006, and (2) reported an initial projected 
     FY2007 shortfall. After the set-aside for the territories as 
     well as the reduction of FY2005 extended funds for the 
     described states, the remaining unspent FY2005 funds would be 
     available to states with a net projected FY2007 shortfall, 
     described as each state's initial projected shortfall reduced 
     by the extended FY2005 funds for the described states. Each 
     state with a net projected shortfall would receive a 
     redistribution of FY2005 funds to cover its net projected 
     shortfall or, if the remaining funds are inadequate to cover 
     the FY2007 projected shortfalls, a portion of the available 
     unspent FY2005 original allotments in proportion to the 
     state's contribution to the total shortfall pool. If any 
     FY2005 unspent original allotments remain, they would then be 
     extended proportionally to states that did not spend their 
     FY2005 allotments by the end of the two-year period of 
     availability. From the 1.05% territory set-aside, each 
     territory would receive an amount in proportion to its 
     contribution to the total pool of FY2005 original allotments 
     for the territories.
       To calculate the amounts available for redistribution and 
     retention in each formula described above, the Secretary 
     would use expenditures reported by states not later than 
     November 30, 2005, for the FY2003and FY2004 redistributions, 
     and November 30, 2006, for the FY2005 redistribution. To 
     calculate states with projected shortfalls in each formula 
     described above, the Secretary would use projected 
     expenditures reported by the states not later than September 
     30, 2005, for the FY2003 and FY2004 redistributions, and not 
     later than September 30, 2006, for the FY2005 redistribution. 
     This provision of the Senate bill would be effective upon 
     enactment of this Act.
     House Bill
       No provision.
     Conference Agreement
       Out of money not otherwise available in the Treasury, the 
     conference agreement authorizes and appropriates $283 million 
     for the purpose of providing additional SCHIP allotments to 
     shortfall states in FY2006. The conference agreement defines 
     shortfall states as those with an approved SCHIP plan for 
     which (based on the most recent SCHIP data as of December 
     16, 2005 the Secretary estimates that such state's FY2006 
     projected expenditures exceed the sum of all funds 
     available for expenditure by that state in FY2006 
     including: (1) the amount of such state's FY2004 and 
     FY2005 original allotments that will not be expended in 
     FY2005; (2) the amount, if any, that is redistributed to 
     such state during FY2006; and (3) the amount of such 
     state's FY2006 original allotment. From the additional 
     SCHIP appropriation, each FY2006 shortfall state would 
     receive an allotment to cover its projected shortfall or, 
     if the appropriated funds are inadequate to cover the 
     FY2006 projected shortfalls, the

[[Page H12733]]

     Secretary shall distribute the available funds on a pro 
     rata basis based on each such state's estimated shortfall. 
     Such additional SCHIP allotments are available for one 
     year only. On October 1, 2006, any remaining unspent 
     additional allotments will not be subject to 
     redistribution, but will instead revert to the Treasury.
       The conference agreement limits the types of payments that 
     may be matched at the SCHIP enhanced matching rate for SCHIP 
     expenditures drawn against the additional FY2006 
     appropriation available to shortfall states to include child 
     health assistance payments made on behalf of targeted low-
     income children. The amendments made by this section of the 
     conference agreement apply to items and services furnished on 
     or after October 1, 2005, without regard to whether or not 
     regulations implementing such amendments have been issued.
     Prohibition against covering nonpregnant childless adults 
         with SCHIP funds (Section 6102 of the Conference 
         Agreement, and Section 6053 of the Senate Bill)
     Current Law
       Section 1115 of the Social Security Act gives the Secretary 
     of HHS broad authority to modify virtually all aspects of the 
     Medicaid and SCHIP programs. Under Section 1115, the 
     Secretary may waive requirements in Section 1902 (usually, 
     freedom of choice of provider, comparability, and 
     statewideness). For SCHIP, no specific sections or 
     requirements are cited as ``waive-able.'' SCHIP statute 
     simply states that Section 1115, pertaining to research and 
     demonstration projects, applies to SCHIP.
       With respect to SCHIP, the Clinton Administration issued a 
     July 31, 2000, letter regarding treatment of adults. While 
     this Administration was supportive of using the 1115 
     authority to expand SCHIP to parents of Medicaid or SCHIP-
     eligible children, as well as to certain pregnant women, it 
     opposed coverage of childless adults. Under the Bush 
     Administration, the Health Insurance Flexibility and 
     Accountability (HIFA) Initiative was implemented using the 
     1115 waiver authority. The initiative was created to 
     encourage states to increase the number of individuals with 
     health insurance coverage (including childless adults) within 
     current program resources.
     Senate Bill
       The Senate bill would limit the Secretary of Health and 
     Human Services's Section 1115 waiver authority by prohibiting 
     the approval of new waiver, experimental, pilot, or 
     demonstration projects that allow federal SCHIP funds to be 
     used to provide child health assistance or other health 
     benefits coverage to nonpregnant childless adults. The 
     provision would allow the Secretary to continue to approve 
     projects that expand the SCHIP program to caretaker relatives 
     of Medicaid or SCHIP-eligible children (as defined under 
     Section 1931 of Medicaid statue), and to pregnant adults. 
     Finally, the provision would allow for the continuation of 
     existing Medicaid or SCHIP waiver projects (and/or 
     extensions, amendments, or renewals to such projects) 
     affecting federal SCHIP funds that had been approved under 
     the Section 1115 waiver authority before the date of 
     enactment of this Act. This provision would be effective upon 
     the enactment of this Act.
     House Bill
       No provision.
     Conference Agreement
       The Senate bill is agreed to.
     Continued authority for qualifying states to use certain 
         funds for Medicaid expenditures. (Section 6103 of the 
         Conference Agreement, Section 6054 of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       Current law permits qualifying states (i.e., states that on 
     or after April 15, 1997, had an income eligibility standard 
     for children, other than infants, of at least 184% of the 
     FPL.--Other qualifications also apply to states with 
     statewide waivers under Section 1115 of the Social Security 
     Act.) to receive the SCHIP enhanced federal matching rate for 
     the coverage of certain children enrolled in regular 
     Medicaid. Specifically, for services delivered to Medicaid 
     beneficiaries under the age of 19 who are not otherwise 
     eligible for SCHIP and have family income that exceeds 150% 
     of the FPL, federal SCHIP funds can be used to pay the 
     difference between the SCHIP enhanced federal matching rate 
     and the regular Medicaid federal matching rate. The maximum 
     amount that qualifying states may claim under this allowance 
     is the lesser of the following two amounts: (1) 20% of the 
     state's available FY1998 through FY2001 original SCHIP 
     allotments; and (2) the state's balance (calculated 
     quarterly) of any available FY1998 to FY2001 federal SCHIP 
     funds (original allotments or reallocated funds). If there is 
     no balance, states may not claim 20% spending. No 20% 
     spending will be permitted in FY2006 or any fiscal year 
     thereafter.
     House Bill
       No provision.
     Senate Bill
       The Senate bill would continue the authority for qualifying 
     states to apply federal SCHIP matching funds toward the 
     coverage of certain children enrolled in regular Medicaid 
     (not an SCHIP Medicaid expansion). Specifically, the bill 
     would allow qualifying states to use any available FY2004 and 
     FY2005 SCHIP funds (i.e., FY2005 original allotments, and/or 
     FY2004 and FY2005 retained allotments or redistributed funds, 
     as the case may be) for such Medicaid services made on or 
     after October 1, 2005 under the 20% allowance. This provision 
     of the Senate bill would be effective on or after October 1, 
     2005.
     Conference Agreement
       The Senate bill is agreed to.
     Use of Redistributed Funds for Child Health Assistance for 
         Targeted Low-income Children (No provision in the 
         Conference Agreement, ``Section 6051--Subsection b of the 
         Senate Bill, and no provision in the House Bill)
     Current Law
       Like Medicaid, SCHIP is a federal-state matching program. 
     For each dollar of state spending, the federal government 
     makes a matching payment drawn from SCHIP accounts. The 
     federal government contributes more toward the coverage of 
     individuals in SCHIP than it does for those covered under 
     Medicaid. All SCHIP assistance for targeted low-income 
     children, including claims submitted to and approved by CMS 
     for expenditures under the Section 1115 waiver authority, are 
     matched at the enhanced federal medical assistance percentage 
     (enhanced-FMAP).
       Title XXI of the Social Security Act specifies that federal 
     SCHIP funds can be used for child health assistance that 
     meets certain requirements. Apart from these benefit 
     payments, SCHIP payments at the enhanced FMAP rate for four 
     other specific health care activities can be made, including: 
     (1) other child health assistance for targeted low-income 
     children; (2) health services initiatives to improve the 
     health of targeted low-income children and other low-income 
     children; (3) outreach activities; and (4) other reasonable 
     administrative costs.
     Senate Bill
       The Senate bill would limit the types of payments that 
     could be matched at the SCHIP enhanced matching rate for 
     SCHIP expenditures drawn against the FY2003, FY2004, and 
     FY2005 redistributed funds available to shortfall states. 
     Specifically, the Senate bill would require the federal 
     government to make matching payments at the SCHIP enhanced 
     matching rate for child health assistance payments made on 
     behalf of targeted low-income children. However, expenditures 
     drawn against the FY2003, FY2004, and FY2005 redistributed 
     SCHIP funds would occur at the regular Medicaid FMAP rate for 
     all other approved SCHIP expenditures, consisting of the 
     following: (1) benefit expenditures for adults (other than 
     pregnant women) approved under the Section 1115 waiver 
     authority; (2) health services initiatives to improve the 
     bealth of targeted low-income children and other low-income 
     children: (3) outreach activities; and (4) other reasonable 
     administrative costs.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement does not include this provision.
     Authority to Use up to 10 Percent of Fiscal Year 2006 and 
         2007 Allotments for Outreach (No provision in the 
         Conference Agreement, Section 6052 of the Senate Bill, 
         and no provision in the House Bill)
     Current Law
       In general, Title XXI of the Social Security Act specifies 
     that federal SCHIP funds can be used for child health 
     assistance that meets certain requirements. Apart from these 
     benefit payments, SCHIP payments at the enhanced FMAP rate 
     can be made for the following four specific health care 
     activities: (1) other child health assistance for targeted 
     low-income children; (2) health services initiatives to 
     improve the health of targeted low-income children and other 
     low-income children; (3) outreach activities; and (4) other 
     reasonable administrative costs. For a given fiscal year, 
     payments for these four specific health care activities 
     cannot exceed 10% of the total amount of expenditures for 
     SCHIP insurance benefits and other specific health care 
     activities combined. The Medicare, Medicaid and SCHIP 
     Benefits Improvement and Protection Act of 2000 (BIPA) 
     created a special rule for the redistribution of unspent 
     FY1998 and FY1999 original allotments. Under BIPA, states 
     that did not use all of their original allotments for the 
     year were permitted to use up to 10% of their retained FY1998 
     funds for outreach activities. This allowance is over and 
     above spending for such activities under the general 
     administrative cap, described above.
     Senate Bill
       The Senate bill would allow states to use up to 10% of 
     their FY2006 and FY2007 original allotments for expenditures 
     on outreach activities incurred during FY2006 and FY2007 
     respectively. This allowance would be over and above spending 
     for such activities under the general administrative cap 
     described under current law. Outreach activities would 
     include: (1) activities to promote the coordination of the 
     administration of SCHIP with other public and private health 
     insurance programs; and (2) strategies to market the program 
     to the target population and to simplify and expedite the 
     eligibility determination and enrollment process. This 
     provision would be effective upon enactment of this Act.

[[Page H12734]]

     House Bill
       No provision.
     Conference Agreement
       The conference agreement does not include this provision.
     Grants to Promote Innovative Outreach and Enrollment Under 
         Medicaid and SCHIP (No provision in the Conference 
         Agreement, Section 6055 of the Senate Bill, and no 
         provision in the House Bill)
     Current Law
       The federal and state governments share in the costs of 
     both Medicaid and SCHIP, based on formulas defining the 
     federal contribution in federal law. States are responsible 
     for the nonfederal share, using state tax revenues, for 
     example, but can also use local government funds to comprise 
     a portion of the non-federal share. Generally, the non-
     federal share of costs under Medicaid and SCHIP cannot be 
     comprised of other federal funds.
       Under Medicaid, there are no caps on administrative 
     expenses that may be claimed for federal matching dollars. 
     Title XXI specifies that federal SCHIP funds can be used for 
     SCHIP health insurance coverage, called child health 
     assistance that meets certain requirements. Apart from these 
     benefit payments, SCHIP payments for four other specific 
     health care activities can be made, including: (1) other 
     child health assistance for targeted low-income children; (2) 
     health services initiatives to improve the health of SCHIP 
     children and other low-income children; (3) outreach 
     activities; and (4) other reasonable administrative costs. 
     For a given fiscal year, payments for other specific health 
     care activities cannot exceed 10% of the total amount of 
     expenditures for SCHIP benefits and other specific health 
     care activities combined.
     Senate Bill
       The Senate bill would establish a new grant program under 
     SCHIP to (1) finance outreach and enrollment efforts to 
     increase participation of eligible children in both SCHIP and 
     Medicaid, and (2) promote understanding of the importance of 
     health insurance coverage for prenatal care and children. The 
     Secretary would be permitted to reserve a portion of the 
     grant funds for the purpose of awarding performance bonuses 
     to eligible entities (defined below) that meet enrollment 
     goals or other criteria established by the Secretary.
       In awarding grants, the Secretary would be required to give 
     priority to: (1) entities that propose to target geographic 
     areas with high rates of eligible but not enrolled children, 
     or racial and ethnic minorities and health disparity 
     populations, and (2) entities targeting the same populations 
     that are federal health safety net organizations (defined 
     below) or faith-based organizations or consortia. Of the 
     funds appropriated for this grant program (see below), 10% 
     would be set aside for grants to certain Indian health care 
     providers for outreach and enrollment of Indian children. 
     These Indian health care providers would include the Indian 
     Health Service (IRS) and Urban Indian Organization (UIO) 
     providers that receive funds under Title V of the Indian 
     Health Care Improvement Act.
       The Senate bill would require entities seeking a grant to 
     submit an application to the Secretary containing information 
     on the quality and outcome performance measures to be used to 
     evaluate the effectiveness of grant activities to ensure that 
     these activities are meeting their goals. In addition, the 
     application must provide assurances that the entity would: 
     (1) conduct an assessment of the effectiveness using such 
     performance measures, and (2) collect and report enrollment 
     data and other information from these assessment to the 
     Secretary in a form and manner as required by the Secretary.
       The Senate bill would require the Secretary to disseminate 
     to eligible entities and make publicly available the 
     enrollment data and information collected and reported by 
     grantees. The Secretary would also be required to submit an 
     annual report to Congress on the funded outreach activities.
       The Senate bill would require that federal funds awarded 
     under this new grant be used to supplement, not supplant, 
     non-federal funds that are otherwise available for these 
     grant activities.
       Specific definitions would be applicable to the new grant 
     program. Five types of entities would be eligible to receive 
     these grants, including: (1) state or local governments, (2) 
     federal health safety net organizations, (3) national, local 
     or community-based public or nonprofit private organization, 
     (4) faith-based organizations or consortia, to the extent 
     that a grant awarded to such an entity is consistent with the 
     requirements of Section 1955 of the Public Health Service Act 
     (relating to grant awards to non-governmental entities), and 
     (5) elementary or secondary schools. Federal health safety 
     net organizations include a number of different types of 
     entities, including for example: (1) Indian tribes, tribal 
     organizations, UIOs and IHS providers, (2) federally 
     qualified health centers, (3) hospitals that receive 
     disproportionate share hospital (DSH) payments, (4) entities 
     described in Section 340B(a)(4) of the Public Health Service 
     Act (e.g., certain family planning projects, certain grantees 
     providing early intervention services for HIV disease, 
     certain comprehensive hemophilia diagnostic treatment 
     centers, and certain Native Hawaiian health centers), and (5) 
     any other entity that serves children under a federally-
     funded program, including the Special Supplemental Nutrition 
     Program for Women, Infants and Children (WIC), Head Start 
     programs, school lunch programs, and elementary or secondary 
     schools.
       The Senate bill would appropriate $25 million for fiscal 
     year 2007 for these grants. These grants would be in addition 
     to existing SCHIP appropriations, and would not be subject to 
     restrictions on expenditures for outreach activities under 
     current law.
       These provisions would be effective with the FY2007 
     appropriation for this new grant program.
     House Bill
       No provision.
     Conference Agreement
       The conference agreement does not include this provision.

                       Subtitle C--Katrina Relief

     Additional Federal Payments Under Hurricane-Related Multi-
         State Section 1115 Demonstrations (Section 6201 of the 
         Conference Agreement, Sections 6032 and 6071 of the 
         Senate Bill, and Sections 3100 and 3201 of the House 
         Bill)
     Current Law
       The federal medical assistance percentage (FMAP) is the 
     rate at which states are reimbursed for most Medicaid service 
     expenditures. It is based on a formula that provides higher 
     reimbursement to states with lower per capita incomes 
     relative to the national average (and vice versa); it has a 
     statutory minimum of 50% and maximum of 83%. An enhanced FMAP 
     is available for both services and administration under 
     SCHIP, subject to the availability of funds from a state's 
     SCHIP allotment. In order for a state to receive federal 
     Medicaid or SCHIP reimbursement, it must have in effect a 
     state plan approved by the Secretary of HHS that meets 
     requirements set forth in federal statute and regulations.
       Using an application template developed by the Centers for 
     Medicare and Medicaid Service within HHS, a number of states 
     (17 as of December 15, 2005) have been granted waivers under 
     Section 1115 of the Social Security Act to provide Medicaid 
     and SCHIP services to certain individuals affected by 
     Hurricane Katrina (these waivers are referred to as being 
     part of a multistate demonstration project). For purposes of 
     FMAP reimbursement, Section 1115 waivers are deemed to be 
     part of a state's Medicaid or SCHIP state plan (i.e., its 
     ``regular'' Medicaid or SCHIP program).
       All of the waivers granted thus far under the Hurricane 
     Katrina multi-state Section 1115 demonstration create a 
     temporary eligibility period, not to exceed five months, 
     during which certain Hurricane Katrina evacuees will be 
     granted access to Medicaid and SCHIP services in the host 
     state (i.e., the state that has been granted a Section 1115 
     waiver) based on simplified eligibility criteria. In addition 
     to creating temporary Medicaid or SCHIP eligibility for 
     evacuees, waivers for some states also create an 
     uncompensated care pool that may be used through January 31, 
     2006, to augment Medicaid and SCHIP services for evacuees and 
     to reimburse providers that incur uncompensated care costs 
     for uninsured evacuees who do not qualify for Medicaid or 
     SCHIP.
       Disaster declarations were issued in the wake of Hurricane 
     Katrina pursuant to the Robert T. Stafford Disaster Relief 
     and Emergency Assistance Act, which authorizes the President 
     to issue such declarations to speed a wide range of federal 
     aid--including individual assistance (e.g., housing for 
     individuals and families) and public assistance (e.g., repair 
     of community infrastructure)--to states determined to be 
     overwhelmed by hurricanes or other catastrophes. The Federal 
     Emergency Management Agency (FEMA) makes the decision as to 
     when a major disaster or emergency is ``closed out'' for 
     administrative purposes.
     Senate Bill
       Under the Senate bill, for items and services furnished 
     during the period August 28, 2005 through May 15, 2006, 
     states would receive 100% FMAP reimbursement for Medicaid and 
     SCHIP assistance provided to individuals who resided during 
     the week preceding Hurricane Katrina in one of the parishes 
     of Louisiana or counties of Mississippi and Alabama specified 
     in the bill. Costs directly attributable to related 
     administrative activities would also be reimbursed at 100%.
       A separate provision would allow the state of Louisiana, 
     Mississippi, or Alabama to elect to not have the Medicaid 
     subtitle of the bill apply with respect to the state during 
     any period for which a major disaster declared in accordance 
     with the Stafford Act with respect to a parish (in the case 
     of Louisiana) or a county (in the case of Mississippi or 
     Alabama) as a result of Hurricane Katrina is in effect.
     House Bill
       Under the House bill, for items and services furnished 
     during the period August 28, 2005 through May 15, 2006, 
     states would receive 100% FMAP reimbursement for Medicaid and 
     SCHIP assistance provided to: (1) any individual residing in 
     a parish of Louisiana, a county of Mississippi, or a major 
     disaster county of Alabama and (2) individuals who resided 
     during the week preceding Hurricane Katrina in a parish or 
     county for which a major disaster has been declared as a 
     result of the hurricane and for which the President has 
     determined, as of September 14, 2005, warrants individual 
     assistance under the Stafford Act. Costs directly 
     attributable to related administrative activities would also 
     be reimbursed at 100%.
       A separate provision would allow the Medicaid subtitle of 
     the bill to not apply during

[[Page H12735]]

     the 11-month period beginning September 1, 2005, to 
     individuals entitled to Medicaid assistance by reason of 
     their residence in a parish of Louisiana or a county of 
     Mississippi or Alabama for which a major disaster has been 
     declared as a result of Hurricane Katrina and for which the 
     President has determined, before September 14, 2005, warrants 
     individual and public assistance under the Stafford Act.
     Conference Agreement
       The conference agreement appropriates $2 billion (in 
     addition to any funds made available for the National 
     Disaster Medical System under the Department of Homeland 
     Security for health care costs related to Hurricane Katrina) 
     for use by the Secretary of HHS to pay eligible states (those 
     who have provided care to affected individuals or evacuees 
     under a Section 1115 project) for the following purposes:
        the non-federal share of expenditures for health 
     care provided to affected individuals (those who reside in a 
     major disaster area declared as a result of Hurricane Katrina 
     and continue to reside in the same state) and evacuees 
     (affected individuals who have been displaced to another 
     state) under approved multi-state Section 1115 demonstration 
     projects;
        reasonable administrative costs related to such 
     projects;
        the non-federal share of expenditures for medical 
     care provided to individuals under existing Medicaid and 
     SCHIP state plans; and
        other purposes, if approved by the Secretary, to 
     restore access to health care in impacted communities.
       The non-federal share paid to eligible states shall not be 
     regarded as federal funds for purposes of Medicaid matching 
     requirements. No payment obligations may be incurred under 
     approved multi-state Section 1115 projects for costs of: (1) 
     health care provided as Medicaid or SCHIP medical assistance 
     incurred after June 30, 2006 and (2) uncompensated care or 
     services and supplies beyond those included as Medicaid or 
     SCHIP medical assistance incurred after January 31, 2006.
     State High Risk Health Insurance Pool Funding (Section 6202 
         of the Conference Agreement, no provision in the Senate 
         Bill, and Section 3202 of the House Bill)
     Current Law
       A majority of states have established high-risk health 
     insurance pool programs as one approach to reduce the number 
     of uninsured persons. These programs target individuals who 
     cannot obtain or afford health insurance in the private 
     health insurance market, primarily because of pre-existing 
     health conditions. Many states also use their high-risk pools 
     to provide access to health insurance to individuals eligible 
     under the guaranteed issue and portability provisions of the 
     Health Insurance Portability and Accountability Act of 
     1996 (HIPAA, P.L. 104-191). In general, high-risk pools 
     are operated through state-established nonprofit 
     organizations that contract with private insurance 
     companies to collect premiums, administer benefits, and 
     pay claims. These programs tend to be small and enroll a 
     small percentage of the uninsured. As of December 2004, 33 
     states operate high risk health insurance pool programs. 
     Authorizing legislation for federal funding of these pools 
     expired September 30, 2005.
     Senate Bill
       No provision.
     House Bill
       The House bill would amend the Public Health Service Act to 
     reauthorize federal funding for state high risk health 
     insurance pools. For FY2006, it would provide $90 million in 
     appropriations for grants to states to be used to cover up to 
     50% of operating expenses of existing state high risk pools.
     Conference Agreement
       The conference agreement would appropriate, for FY2006, $75 
     million for the losses incurred by a State in connection with 
     the operation of their qualified high risk pool. There is 
     also $15 million in FY2006 appropriated to fund seed grants 
     to States to create, and initially fund, a high risk pool. 
     This funding will also apply upon the enactment of the State 
     High Risk Pool Funding Extension Act of 2005.
     Recomputation of HPSA, MUA, and MUP Designations Within 
         Hurricane Katrina Affected Areas (No provision in the 
         Conference Agreement, no provision in the Senate Bill, 
         and Section 3203 of the House Bill)
     Current Law
       The Public Health Service Act provides for the designation 
     of areas underserved by healthcare personnel, providing 
     federal loans, scholarships and grants to improve the 
     distribution of health care workers. The program is 
     authorized through 2006.
     Senate Bill
       No provision.
     House Bill
       The House bill would direct the Secretary of HHS to review 
     all such shortage designations in Hurricane Katrina declared 
     disaster areas (pursuant to the Stafford Act), considering 
     potential new shortages of health care workers.
     Conference Agreement
       No provision.
     Waiver of Certain Requirements Applicable to the Provision of 
         Health Care in Areas Impacted by Hurricane Katrina (No 
         provision in the Conference Agreement, no provision in 
         the Senate Bill, and Section 3204 of the House Bill)
     Current Law
       The Public Health Service Act establishes requirements for 
     federally qualified health centers and personnel in the 
     National Health Service Corps. Programs are authorized 
     through 2006.
     Senate Bill
       No provision.
     House Bill
       The House bill would direct the Secretary of HHS to relax 
     certain requirements for the conduct of federally qualified 
     health centers, and National Health Service Corps personnel 
     staffing them, in areas directly affected by Hurricane 
     Katrina, or indirectly affected by hosting large numbers of 
     evacuees.
     Conference Agreement
       No provision.
     House Bill
       Section 7001 temporarily increases the vessel tonnage fees 
     paid by vessels arriving in the United States. Specifically, 
     section 7001 increases the vessel tonnage fees paid by 
     vessels arriving in the U.S. from a place in North America, 
     Central America, the West India Islands, the Bahama Islands, 
     and Newfoundland, and by certain vessels returning from a 
     ``voyage to nowhere.'' The fees are increased from 2 cents 
     per ton, not to exceed 10 cents per ton in a single year, to 
     4.5 cents per ton, not to exceed 22.5 cents per ton in a 
     single year. In addition, section 7001 increases the vessel 
     tonnage fees paid by vessels arriving from a foreign port 
     anywhere else in the world from 6 cents per ton, not to 
     exceed to 30 cents per ton, to 13.5 cents per ton, not to 
     exceed 67.5 cents per ton in a single year. These increased 
     rates will be in effect for fiscal years 2006 through 2010.

             Title VII.--House Committee on Ways and Means

       TANF--Temporary Assistance for Needy Families (Subtitle A)

     Reauthorization of Grants
     Current Law
       The TANF block grant provides states with funding for a 
     wide range of benefits and services to families with 
     children, including cash welfare. Basic block grants are 
     funded nationally at $16.5 billion per year. The law also 
     provides supplemental grants to certain states funded at $319 
     million per year; performance bonus funds of $200 million per 
     year for meeting program goals and $100 million per year for 
     reducing out-of-wedlock pregnancies; contingency funds of $2 
     billion for states experiencing economic downturns; and a 
     loan fund. Funding authority for the program expires December 
     31, 2005.
       Allows up to 30% of TANF block grants to be transferred to 
     the Child Care and Development Block Grant (CCDBG) and Social 
     Services Block Grant (SSBG), although limit on transfers to 
     SSBG is set at 4.25% for FY2006 and later.
     House Passed Bill
       Extends TANF block grant at current level through FY2010 
     and TANF supplemental grants at current levels through 
     FY2009. Eliminates all bonus funds and the loan fund. (Some 
     of these savings are used to finance grants to promote 
     healthy marriages and responsible fatherhood, see below.) 
     Continues a $2 billion contingency fund through FY2010.
       Raises overall transfer authority to 50% of the TANF block 
     grant, and increases maximum transfer to SSBG to 10% (level 
     allowed in the original 1996 welfare law).
     Senate Passed Bill
       No provision.
     Conference Report
       Recede to the House, with the modification that TANF 
     supplemental grants are authorized at their current level for 
     three fiscal years (through FY2008). Recede to the Senate 
     with regard to transfer authority.
     Work Participation Requirements
     Current Law
       States are required to make an assessment of the work-
     readiness of TANF assistance recipients and may establish an 
     Individual Responsibility plan for them. States are required 
     to sanction families with a recipient who does not comply 
     with work.
       Recipients are required to visit their children's schools 
     twice per year.
     Senate Passed Bill
       No provision.
     Conference Report
       Recede to the Senate with respect to self-sufficiency 
     plans, sanctions, and the increase in work participation 
     standard to 70%.
       Recede to the House with regard to the caseload reduction 
     credit, with the modification that the base year for this 
     credit is changed to FY2005, effective October 1, 2006. Adds 
     that families receiving assistance under separate state 
     programs are included in the calculation of work 
     participation rates; and the Secretary of Health and Human 
     Services is to provide additional direction to and oversight 
     of states related to activities that may be counted as work 
     activities, how to count and verify reported hours of work, 
     and determining who is a work-eligible individual, with a new 
     penalty for states that fail to establish and maintain such 
     improved work participation verification procedures.
       Recede to the Senate on additional credits for states with 
     large past caseload declines, hours of work, partial credits, 
     special allowances or requirements, and changes in list of

[[Page H12736]]

     work activities and extent to which such activities may be 
     counted as work.
     Healthy Marriage Promotion Grants
     Current Law
       No special grants. States may use TANF funds for activities 
     to promote the formation and maintenance of two-parent 
     families.
     House Passed Bill
       Establishes $100 million per year in matching grants and 
     $100 million per year in demonstration grants to fund various 
     activities to promote healthy marriages. Requires that 
     marriage promotion activities be voluntary. Requires that 
     grantees consult with organizations with experts in domestic 
     violence.
     Senate Passed Bill
       No provision.
     Conference Report
       Recede to the House with the modification that the 
     Secretary of HHS will award $150 million per fiscal year in 
     healthy marriage promotion, responsible fatherhood, and 
     related grants in each of FYs 2006-2010. Of this amount, up 
     to $50 million per fiscal year may be awarded on a 
     competitive basis for activities promoting responsible 
     fatherhood, and up to $2 million per fiscal year is available 
     for demonstration projects for coordination of child welfare 
     and TANF services to tribal families at risk of child abuse 
     or neglect.
     Conference Report
       Recede to the House with the modification that total child 
     care funding will increase by $1 billion above the current 
     level over five years, appropriating $2.917 billion in 
     mandatory child care funding for each of FYs 2006-2010.
     Child Support Enforcement (Subtitle C)
     Current Law
       The Child Support Enforcement (CSE) program is a federal-
     state program that provides the following basic services to 
     both welfare and nonwelfare families: parent location, review 
     and modification of child support orders, collection of child 
     support payments, establishment of medical child support, and 
     distribution of child support payments. The CSE program is 
     funded with both state and federal dollars. There are four 
     funding mechanisms. First, states spend their own money to 
     operate a CSE program. Second, the federal government 
     reimburses each state 66% for most of its child support 
     enforcement activities or services. The federal government 
     reimburses states at a higher 90% matching rate for paternity 
     determination expenditures. Third, states collect child 
     support on behalf of families receiving welfare benefits to 
     reimburse themselves (and the federal government) for the 
     cost of welfare payments to the family. Fourth, an incentive 
     payment is given to states for operating a good program 
     (current law requires that states reinvest incentive payments 
     back into the CSE program or related activities).
     House Passed Bill
       Revises some child support enforcement collection 
     mechanisms and add others.
       Provides financial incentives to states that send more 
     child support collected on behalf of families on welfare to 
     the families themselves (rather than retain funds as 
     reimbursement for welfare costs). The federal government 
     would pay for a share of support passed through to welfare 
     families as long as that support did not reduce the family's 
     welfare benefit. Also gives states financing incentives to 
     send to former welfare families more of the child support 
     payments collected on their behalf.
       Includes a provision to gradually reduce (from FY2007-
     FY2010) the federal matching rate for child support 
     administrative expenditures from its current 66% to 50%. 
     Also, prohibits the federal government from matching child 
     support incentive payments reinvested in the CSE program.
     Senate Passed Bill
       No provision.
     Conference Report
       Recede to the House with modifications that revise child 
     support enforcement collection mechanisms, and provide 
     financial incentives to states that pass through more child 
     support to current and former TANF families. Recede to the 
     House with respect to ending federal matching of state 
     expenditure of federal child support incentive funds, 
     effective in FY 2008. Recede to the Senate with regard to 
     reducing the federal administrative matching rate. Includes 
     provision changing to 66 percent the federal matching rate 
     for laboratory costs incurred in determining paternity, 
     effective October 1, of the Social Security Act and 
     determinations regarding foster care placement, termination 
     of parental rights, and recognition of adoptions. Courts can 
     also use these grant funds to implement changes found 
     necessary as a result of the assessments.
     House Passed Bill
       Restates the federal foster care eligibility rules to 
     effectively nullify the Rosales decision. Restates adoption 
     assistance eligibility to make the same clarification and to 
     simplify the eligibility determination.
     Senate Passed Bill
       No provision.
     Conference Report
       Recede to the House, with the modification to include (1) 
     new funds totaling $100 million over the five-year period FY 
     2006-2010 for strengthening courts involved in child welfare 
     proceedings, and (2) new funds for the Safe and Stable 
     Families program, increasing mandatory funding to $345 
     million in FY 2006 (and thus totaling $200 million over the 
     five-year period FY 2006-2010).
     Limit Federal Foster Care Administrative Claims
     Current Law
       States may claim reimbursement for some administrative 
     costs related to children who are at ``imminent'' risk of 
     entering foster care. Some states, relying on prior HHS 
     policy guidance, make additional administrative claims for 
     children placed in unlicensed, or otherwise federally 
     ineligible placement settings, provided the foster child 
     meets all other federal foster care eligibility criteria.
     House Passed Bill
       Specifies in which cases, and for how long, states may seek 
     reimbursement of foster care administrative costs only on 
     behalf of otherwise federally eligible children who are 
     living with unlicensed relatives, in another ineligible 
     setting, or who have not yet entered foster care.
     Senate Passed Bill
       No provision.
     Conference Report
       Recede to the House.
     Supplemental Security Income (Subtitle E)
     Review of State Agency Blindness and Disability 
         Determinations
     Current Law
       No provision.
     Conference Report
       Recede to the Senate.

                         Statement of Managers

          Title VIII--Education and Pension Benefit Provisions

       With respect to Section 2201 (d) of the House amendment, 
     the managers on the Part of the House agree to request a 
     study by the Government Accountability Office regarding the 
     effect of the premium as provided under Section 4006(a)(7) of 
     ERISA on persons who are a contributing sponsor of the plan 
     or a member of such sponsor's controlled group and who has 
     filed or has had filed against such person a petition seeking 
     reorganization in a case under title 11 of the United States 
     Code, or under any similar law of a State or a political 
     subdivision of a State (or a case described in section 
     4041(c)(2)(B)(i) filed by or against such person and report 
     the same to the Committees on Education and the Workforce and 
     the Committee on the Judiciary within 18 months of enactment 
     of this Act.

                         Statement of Managers

                            LIHEAP Provision

       The Congress finds the following:
       (1) Hurricanes Katrina and Rita severely disrupted crude 
     oil and natural gas production in the Gulf of Mexico. The 
     Energy Information Administration estimates that as a result 
     of these two hurricanes, the amount of shut in crude oil 
     production nearly doubled to almost 1,600,000 barrels per 
     day, and the amount of natural gas production shut in also 
     doubled to about 8,000,000,000 cubic feet per day. The 
     hurricanes also initially shut down most of the crude oil 
     refinery capacity in the Gulf of Mexico region. These 
     disruptions led to significantly higher prices for crude oil, 
     refined oil products, and natural gas expected to continue in 
     the foreseeable future.
       (2) These production and supply disruptions are expected to 
     lead to significantly higher heating costs for consumers for 
     the foreseeable future. These significant increases in home 
     heating costs this winter and for the foreseeable future will 
     particularly harm low-income consumers. The Low-Income Home 
     Energy Assistance Program is designed to assist these low-
     income consumers in this situation. Accordingly, Congress 
     seeks a one-time only supplement to the Low-Income Home 
     Energy Assistance Program fund to assist low-income consumers 
     with the additional home heating expenditures that they will 
     face in the foreseeable future as a result of Hurricanes 
     Katrina and Rita.


             Section-by-Section Analysis of the Legislation

     Section 9001 Funding Availability
       This section appropriates to the Secretary of Health and 
     Human Services for a 1-time only obligation and expenditure 
     $250,000,000 for fiscal year 2007 for allocation under 
     section 2604(a) through (d) and $750,000,000 for allotment of 
     emergency funds under section 2604(e) of the Low-Income Home 
     Energy Assistance Act of 1981 (42 D.S.C. 8623(a) through 
     (e)), for the sole purpose of providing assistance to offset 
     the anticipated higher energy costs caused by Hurricane 
     Katrina and Hurricane Rita.
       This section sunsets after September 30, 2007, and no 
     monies provided for under this section shall be available 
     after such date.
       P.L. 109-58, the Energy Policy Act of 2005, reauthorized 
     annual regular LIHEAP funds at $5.1 billion per year from 
     FY2005 to FY2007. The LIHEAP appropriation for FY2005 was 
     $2.182 billion for allocation pursuant to the formula set 
     forth by law. No funds were appropriated for allotment of 
     emergency funds.

     For consideration of the Senate bill, and the House amendment 
     thereto, and modifications committed to conference:
     Jim Nussle,
     Jim Ryun,
     Ander Crenshaw,
     Adam Putnam,
     Roger F. Wicker,

[[Page H12737]]

     Kenny C. Hulshof,
     Paul Ryan,
     Roy Blunt,
     Tom DeLay,
     From the Committee on Agriculture, for consideration of title 
     I of the Senate bill and title I of the House amendment, and 
     modifications committed to conference:
     Bob Goodlatte,
     Frank D. Lucas,
     From the Committee on Education and the Workforce, for 
     consideration of title VII of the Senate bill and title II 
     and subtitle C of title III of the House amendment, and 
     modifications committed to conference:
     John Boehner,
     Howard P. McKeon,
     From the Committee on Energy and Commerce, for consideration 
     of title III and title VI of the Senate bill and title III of 
     the House amendment, and modifications committed to 
     conference:
     Joe Barton,
     Nathan Deal,
     From the Committee on Financial Services, for consideration 
     of title II of the Senate bill and title IV of the House 
     amendment, and modifications committed to conference:
     Michael G. Oxley,
     Spencer Bachus
       (Provided that Mr. Ney is appointed in lieu of Mr. Bachus 
     for consideration of subtitles C and D of title II of the 
     Senate bill and subtitle B of title IV of the House 
     amendment:),
     From the Committee on the Judiciary, for consideration of 
     title VIII of the Senate bill and title V of the House 
     amendment, and modifications committed to conference:
     F. James Sensenbrenner, Jr.,
     Lamar Smith,
     From the Committee on Resources, for consideration of title 
     IV of the Senate bill and title VI of the House amendment, 
     and modifications committed to conference:
     Richard Pombo,
     Jim Gibbons,
     From the Committee on Transportation and Infrastructure, for 
     consideration of title V and division A of the Senate bill 
     and title VII of the House amendment, and modifications 
     committed to conference:
     Don Young,
     Frank LoBiondo,
     From the Committee on Ways and Means, for consideration of 
     sections 6039, 6071, and subtitle B of title VI of the Senate 
     bill and title VIII of the House amendment, and modifications 
     committed to conference:
     William Thomas,
     Wally Herger,
                                Managers on the Part of the House.

     Judd Gregg,
     Pete Domenici,
     Chuck Grassley,
     Michael B. Enzi,
     Wayne Allard,
     Jeff Sessions,
     Ted Stevens,
     Richard Shelby,
     Arlen Specter,
     Saxby Chambliss,
     Mitch McConnell,
                               Managers on the Part of the Senate.