[House Report 104-276]
[From the U.S. Government Publishing Office]





   104th Congress 1st 
         Session        HOUSE OF REPRESENTATIVES    Rept. 104-276
                                                        Part 1
_______________________________________________________________________


 
                   MEDICARE PRESERVATION ACT OF 1995

                               ----------                              

                              R E P O R T

                                 of the


                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                                   on

                               H.R. 2425

                             together with

                            DISSENTING VIEWS

      [Including cost estimate of the Congressional Budget Office]




October 16, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed
   104th Congress 1st   HOUSE OF REPRESENTATIVES    Rept. 104-276
         Session
                                                        Part 1
_______________________________________________________________________



                   MEDICARE PRESERVATION ACT OF 1995

                               __________

                              R E P O R T

                                 of the


                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                                   on

                               H.R. 2425


                             together with


                            DISSENTING VIEWS

      [Including cost estimate of the Congressional Budget Office]




October 16, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed
MEDICARE PRESERVATION ACT OF 1995_Part 1 of 2


                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Introduction...................................................111
          A. Purpose and Summary.................................   111
          B. Background and Need for Legislation.................   112
          C. Legislative History.................................   115
 II. Explanation of Bill............................................117
     Subtitle A--MedicarePlus Program...............................117
           Part 1. Increasing Choice Under the Medicare Program..   117
              Sec. 15001. Increasing Choice Under Medicare.......   117
              Sec. 15002. Provisions Relating to MedicarePlus 
                  Requirements for MedicarePlus Organizations; 
                  High Deductible/Medisave Products (Part C of 
                  Medicare)......................................   123
              Sec. 15003. Duplication and Coordination of 
                  Medicare-Related Products......................   147
              Sec. 15004. Transitional Rules for Current Medicare 
                  HMO Program....................................   150
          Part 2. Special Rules for MedicarePlus Medical Savings 
              Accounts...........................................   151
              Sec. 15011. MedicarePlus MSAs......................   151
              Sec. 15012. Certain Rebates Excluded from Gross 
                  Income.........................................   154
          Part 3. Special Antitrust Rules for Provider Sponsored 
              Organizations......................................   154
              Sec. 15021.  Application of Antitrust Rule of 
                  Reason to Provider Service Networks............   154
          Part 4.  Commissions...................................   156
              Sec. 15031.  Medicare Payment Review Commission....   156
              Sec. 15032.  Commission on the Effect of the Baby 
                  Boom Generation on the Medicare Program........   158
              Sec. 15033.  Change in Appointment of Administrator 
                  of the Health Care Financing Administration....   159
           Part 5. Treatment of Hospitals Which Participate in 
              Provider-Sponsored Organizations...................   160
              Sec. 15041.  Treatment of Hospitals Which 
                  Participate in Provider-Sponsored 
                  Organizations..................................   160
      Subtitle B--Preventing Fraud and Abuse........................160
          Sec. 15101.  Increasing Awareness of Fraud and Abuse...   160
          Sec. 15102.  Beneficiary Incentive Programs............   161
          Sec. 15103.  Intermediate Sanctions for MedicarePlus 
              Plans..............................................   162
          Sec. 15104.  Voluntary Disclosure Program..............   164
          Sec. 15105.  Revisions To Current Sanctions............   165
          Sec. 15106.  Consolidated Funding for Anti-Fraud and 
              Abuse Activities Under Medicare Integrity Program..   166
          Sec. 15107.  Permitting Carriers to Carry Out Prior 
              Authorization for Certain Items of Durable Medical 
              Equipment (DME)....................................   169
          Sec. 15108.  Establishment of Health Care Anti-Fraud 
              Task Force.........................................   169
          Sec. 15109.  Study of Adequacy of Private Quality 
              Assurance Programs.................................   170
          Sec. 15110.  Penalty for False Certification for Home 
              Health Services....................................   170
     Subtitle C--Regulatory Relief..................................171
           Part 1. Physician Ownership and Referral Reform.......   171
              Sec. 15201.  Repeal of Prohibitions Based on 
                  Compensation Arrangements......................   171
              Sec. 15202.  Revision of Designated Health Services 
                  Subject to the Prohibition.....................   171
              Sec. 15203.  Delay in Implementation Until 
                  Promulgation of Regulations....................   172
              Sec. 15204.  Exception to Prohibitions.............   173
              Sec. 15205.  Repeal of Reporting Requirements......   175
              Sec. 15206.  Preemption of State Law...............   175
              Sec. 15207.  Effective Date........................   175
           Part 2.  Other Medicare Regulatory Relief.............   176
              Sec. 15211.  Repeal of Medicare and Medicaid 
                  Coverage Data Bank.............................   176
              Sec. 15212.  Clarification of Level of Intent 
                  Required for Imposition of Sanctions...........   177
              Sec. 15213.  Clarification of and Additions to 
                  Exceptions to Anti-Kickback Penalties..........   179
              Sec. 15214.  Solicitation and Publication of 
                  Modifications to Existing Safe Harbors and New 
                  Safe Harbors...................................   180
              Sec. 15215. Issuance of Advisory Opinions Under 
                  Title XI.......................................   181
              Sec. 15216.  Prior Notice of Changes in Billing and 
                  Claims Processing Requirements for Physicians' 
                  Services.......................................   181
           Part 3. Promoting Physician Self-Policing.............   182
              Sec. 15221.  Exemption From Antitrust Laws for 
                  Certain Activities of Medical Self-Regulatory 
                  Entities.......................................   182
       Subtitle D--Medical Liability Reform.........................183
           Part 1. General Provisions............................   183
              Sec. 15301.  Federal Reform of Health Care 
                  Liability Actions..............................   183
              Sec. 15302. Definitions............................   183
              Sec. 15303. Effective Date.........................   183
          Part 2. Uniform Standards for Health Care Liability 
              Actions............................................   184
              Sec. 15311. Statute of Limitations.................   184
              Sec. 15312. Calculation and Payment of Damages.....   184
              Sec. 15313. Alternative Dispute Resolution.........   185
     Subtitle E--Teaching Hospitals; Graduate Medical Education.....185
          Part 1. Teaching Hospital and Graduate Medical 
              Education Trust Fund...............................   185
              Sec. 15401. Establishment of Fund; Payments to 
                  Teaching Hospitals.............................   185
          Part 2. Amendments to Medicare Program.................   188
              Sec. 15411. Transfers to Teaching Hospital and 
                  Graduate Medical Education Fund................   188
              Sec. 15412. Modification in Payment Policies 
                  Regarding Graduate Medical Education...........   189
          Part 3. Reform of Federal Policies Regarding Teaching 
              Hospitals and Graduate Medical Education...........   191
              Sec. 15421. Establishment of Advisory Panel for 
                  Recommending Policies Regarding Teaching 
                  Hospitals and Graduate Medical Education.......   191
     Subtitle F--Provisions Relating to Medicare Part A.............192
          Part 1. Hospitals......................................   192
              Sec. 15501. Reductions in Inflation Updates for PPS 
                  Hospitals......................................   192
              Sec. 15502. Reductions in Disproportionate Share 
                  Payment Adjustments............................   193
              Sec. 15503. Payments for Capital-Related Costs for 
                  Inpatient Hospital Services....................   195
              Sec. 15504. Reduction in Adjustment for Indirect 
                  Medical Education..............................   196
              Sec. 15505. Treatment of PPS-Exempt Hospitals......   196
              Sec. 15506. Reduction in Payments to Hospitals for 
                  Enrollees' Bad Debts...........................   197
              Sec. 15507. Permanent Extension of Hemophilia Pass- 
                  Through........................................   198
              Sec. 15508. Conforming Amendment to Certification 
                  of Christian Science Providers.................   198
              Sec. 15511. Sole Community Hospitals...............   199
              Sec. 15512. Clarification of Treatment of Essential 
                  Access Community Hospital/Rural Primary Care 
                  Hospital (EACH/RPCH)...........................   199
              Sec. 15513. Rural Emergency Access Care Hospitals 
                  (REACHs).......................................   200
              Sec. 15514. Classification of Rural Referral 
                  Centers........................................   201
              Sec. 15515. Floor on Area Wage Index...............   202
          Part 2. Payments to Skilled Nursing Facilities (SNFs)..   202
              Sec. 15521. Payments for Routine Service Costs.....   202
              Sec. 15522. Incentives for Cost Effective 
                  Management of Covered Non-Routine Services.....   204
              Sec. 15523. Payments for Routine Service Costs.....   206
              Sec. 15524. Reductions in Payment for Capital-
                  Related Costs..................................   207
              Sec. 15525. Treatment of Items and Services Paid 
                  for under Part B...............................   207
              Sec. 15526. Certification of Facilities Meeting 
                  Revised Nursing Home Reform Standards..........   207
              Sec. 15527. Medical Review Process.................   209
              Sec. 15528. Report by Medicare Payment Review 
                  Commission.....................................   210
              Sec. 15529. Effective Date.........................   210
     Subtitle G--Provisions Relating to Medicare Part B.............210
          Part 1. Payment Reforms................................   210
              Sec. 15601. Payments for Physicians Services.......   210
              Sec. 15602. Elimination of Formula-Driven 
                  Overpayment for Certain Outpatient Hospital 
                  Services.......................................   213
              Sec. 15603. Reduction in Updates to Payment Amounts 
                  for Durable Medical Equipment (DME)............   213
              Sec. 15604. Reduction in Updates to Payment Amounts 
                  for Clinical Laboratory Services...............   214
              Sec. 15605. Extension of Reductions in Payments for 
                  Costs of Hospital Outpatient Services..........   215
              Sec. 15606. Freeze in Payments for Ambulatory 
                  Surgical Center Services.......................   215
              Sec. 15607. Rural Emergency Access Care Hospitals..   216
          Part 2. Part B Premium.................................   216
              Sec. 15611. Extension of Part B Premium............   216
              Sec. 15612. Income-Related Reduction in Medicare 
                  Subsidy........................................   217
          Part 3. Administration of Laboratory Services..........   218
              Sec. 15621. Administrative Simplification..........   218
          Part 4. Coverage of Anti-Nausea Drugs..................   219
              Sec. 15631. Coverage of Certain Anti-Nausea Drugs 
                  Under Chemotherapeutic Regimen.................   219
          Part 5. Coverage of Chiropractic Services..............   220
              Sec. 15641. Coverage of Chiropractic Services......   220
     Subtitle H--Provisions Relating to Medicare Parts A and B......220
          Part 1. Home Health Services...........................   220
              Sec. 15701. Payment for Home Health Services.......   220
              Sec. 15702. Maintaining Savings Resulting from 
                  Temporary Freeze on Payment Increase for Home 
                  Health Services................................   223
              Sec. 15703. Extension of Waiver of Presumption of 
                  Lack of Knowledge of Exclusion from Coverage 
                  for Home Health Agencies.......................   224
              Sec. 15704. Study of Coverage of Services of 
                  Christian Science Providers....................   225
          Part 2. Medicare Secondary Payer Improvements..........   225
              Sec. 15711. Extension and Expansion of Existing 
                  Requirements...................................   225
              Sec. 15712. Improvements in Recovery of Payments...   226
              Sec. 15713. Prohibiting Retroactive Application of 
                  Policy Regarding ESRD Beneficiaries Enrolled in 
                  Primary Plans..................................   227
          Part 3. Failsafe.......................................   227
              Sec. 15714. Failsafe Budget Mechanism..............   227
          Part 4. Administrative Simplification..................   231
              Sec. 15731. Standards for Medicare Information 
                  Transactions and Data Elements.................   231
          Part 5. Other Provision Relating to Parts A and B......   232
              Sec. 15741. Clarification of Medicare Coverage of 
                  Items and Services Associated with Certain 
                  Medical Devices Approved for Investigational 
                  Use............................................   232
              Sec. 15742. Additional Exclusion from Coverage.....   233
     Subtitle I--Clinical Laboratories..............................234
          Sec. 15801. Exemption of Physicians Office Laboratories   234
     Subtitle J--Lock-Box Provisions for Medicare Part B Savings From 
     Growth Reductions..............................................234
          Sec. 15901. Establishment of Medicare Growth Reduction 
              Trust Fund for Part B Savings......................   234
III. Votes of the Committee.........................................235
 IV. Budget Effects of the Bill.....................................247
          A. Committee Estimate of Budgetary Effects.............   247
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures.......................................   250
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................   250
  V. Other Matters To Be Discussed Under the Rules of the House.....256
           A. Committee Oversight Findings and Recommendations...   256
          B. Summary of Findings and Recommendations of the 
              Committee on Government Reform and Oversight.......   256
          C. Inflationary Impact Statement.......................   256
 VI. Applicability of House Rule XXI5(C)............................256
VII. Applicability of Federal Advisory Committee Act................256
VIII.Changes in Existing Law Made by the Bill as Reported...........257

 IX. Dissenting Views...............................................463
104th Congress                                            Rept. 104-276
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     Part 1
_______________________________________________________________________


                   MEDICARE PRESERVATION ACT OF 1995

_______________________________________________________________________


October 16, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2425]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2425) to amend title XVIII of the Social Security 
Act to preserve and reform the medicare program, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu thereof 
the following:

SECTION 1. PURPOSE.

  The purpose of this Act is to reform the medicare program, in order 
to preserve and protect the financial stability of the program.

                           TITLE XV--MEDICARE

SEC. 15000. SHORT TITLE OF TITLE; AMENDMENTS AND REFERENCES TO OBRA; 
                    TABLE OF CONTENTS OF TITLE.

  (a) Short Title.--This title may be cited as the ``Medicare 
Preservation Act of 1995''.
  (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this title an amendment is expressed 
in terms of an amendment to or repeal of a section or other provision, 
the reference shall be considered to be made to that section or other 
provision of the Social Security Act.
  (c) References to OBRA.--In this title, the terms ``OBRA-1986'', 
``OBRA-1987'', ``OBRA-1989'', ``OBRA-1990'', and ``OBRA-1993'' refer to 
the Omnibus Budget Reconciliation Act of 1986 (Public Law 99-509), the 
Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203), the 
Omnibus Budget Reconciliation Act of 1989 (Public Law 101-239), the 
Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508), and the 
Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66), 
respectively.
  (d) Table of Contents of Title.--The table of contents of this title 
is as follows:

Sec. 15000. Short title of title; amendments and references to OBRA; 
table of contents of title.

                    Subtitle A--MedicarePlus Program

          Part 1--Increasing Choice Under the Medicare Program

Sec. 15001. Increasing choice under medicare.
Sec. 15002. MedicarePlus program.

             ``Part C--Provisions Relating to MedicarePlus

        ``Sec. 1851. Requirements for MedicarePlus organizations; high 
                        deductible/medisave products.
        ``Sec. 1852. Requirements relating to benefits, provision of 
                        services, enrollment, and premiums.
        ``Sec. 1853. Patient protection standards.
        ``Sec. 1854. Provider-sponsored organizations.
        ``Sec. 1855. Payments to MedicarePlus organizations.
        ``Sec. 1856. Establishment of standards for MedicarePlus 
                        organizations and products.
        ``Sec. 1857. MedicarePlus certification.
        ``Sec. 1858. Contracts with MedicarePlus organizations.
Sec. 15003. Duplication and coordination of medicare-related products.
Sec. 15004. Transitional rules for current medicare HMO program.

    Part 2--Special Rules for MedicarePlus Medical Savings Accounts

Sec. 15011. MedicarePlus MSA's.
Sec. 15012. Certain rebates excluded from gross income.

      Part 3--Special Antitrust Rule for Provider Service Networks

Sec. 15021. Application of antitrust rule of reason to provider service 
networks.

                          Part 4--Commissions

Sec. 15031. Medicare Payment Review Commission.
Sec. 15032. Commission on the Effect of the Baby Boom Generation on the 
Medicare Program.
Sec. 15033. Change in appointment of Administrator of HCFA.

Part 5--Treatment of Hospitals Which Participate in Provider-Sponsored 
                             Organizations

Sec. 15041. Treatment of hospitals which participate in provider-
sponsored organizations.

                 Subtitle B--Preventing Fraud and Abuse

Sec. 15101. Increasing awareness of fraud and abuse.
Sec. 15102. Beneficiary incentive programs.
Sec. 15103. Intermediate sanctions for medicare health maintenance 
organizations.
Sec. 15104. Voluntary disclosure program.
Sec. 15105. Revisions to current sanctions.
Sec. 15106. Direct spending for anti-fraud activities under medicare.
Sec. 15107. Permitting carriers to carry out prior authorization for 
certain items of durable medical equipment.
Sec. 15108. Establishment of Health Care Anti-Fraud Task Force.
Sec. 15109. Study of adequacy of private quality assurance programs.
Sec. 15110. Penalty for false certification for home health services.

                     Subtitle C--Regulatory Relief

              Part 1--Physician Ownership Referral Reform

Sec. 15201. Repeal of prohibitions based on compensation arrangements.
Sec. 15202. Revision of designated health services subject to 
prohibition.
Sec. 15203. Delay in implementation until promulgation of regulations.
Sec. 15204. Exceptions to prohibition.
Sec. 15205. Repeal of reporting requirements.
Sec. 15206. Preemption of State law.
Sec. 15207. Effective date.

                Part 2--Other Medicare Regulatory Relief

Sec. 15211. Repeal of Medicare and Medicaid Coverage Data Bank.
Sec. 15212. Clarification of level of intent required for imposition of 
sanctions.
Sec. 15213. Additional exception to anti-kickback penalties for managed 
care arrangements.
Sec. 15214. Solicitation and publication of modifications to existing 
safe harbors and new safe harbors.
Sec. 15215. Issuance of advisory opinions under title XI.
Sec. 15216. Prior notice of changes in billing and claims processing 
requirements for physicians' services.

               Part 3--Promoting Physician Self-Policing

Sec. 15221. Exemption from antitrust laws for certain activities of 
medical self-regulatory entities.

                  Subtitle D--Medical Liability Reform

                       Part 1--General Provisions

Sec. 15301. Federal reform of health care liability actions.
Sec. 15302. Definitions.
Sec. 15303. Effective date.

      Part 2--Uniform Standards for Health Care Liability Actions

Sec. 15311. Statute of limitations.
Sec. 15312. Calculation and payment of damages.
Sec. 15313. Alternative dispute resolution.

     Subtitle E--Teaching Hospitals and Graduate Medical Education

  Part 1--Teaching Hospital and Graduate Medical Education Trust Fund

Sec. 15401. Establishment of Fund; payments to teaching hospitals.

 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND

                    ``Part A--Establishment of Fund

        ``Sec. 2201. Establishment of Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

        ``Sec. 2211. Formula payments to teaching hospitals.

  ``Subpart 2--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

        ``Sec. 2221. Determination of amount relating to indirect 
                        costs.
        ``Sec. 2222. Indirect costs; special rules regarding 
                        determination of hospital-specific percentage.
        ``Sec. 2223. Indirect costs; alternative payments regarding 
                        teaching hospitals in certain States.

   ``Subpart 3--Amount Relating to Direct Costs of Graduate Medical 
                               Education

        ``Sec. 2231. Determination of amount relating to direct costs.
        ``Sec. 2232. Direct costs; special rules regarding 
                        determination of hospital-specific percentage.
        ``Sec. 2233. Direct costs; authority for payments to consortia 
                        of providers.
        ``Sec. 2234. Direct costs; alternative payments regarding 
                        teaching hospitals in certain States.

                    ``Subpart 4--General Provisions

        ``Sec. 2241. Adjustments in payment amounts.

                 Part 2--Amendments to Medicare Program

Sec. 15411. Transfers to Teaching Hospital and Graduate Medical 
Education Trust Fund.
Sec. 15412. Modification in payment policies regarding graduate medical 
education.

  Part 3--Reform of Federal Policies Regarding Teaching Hospitals and 
                       Graduate Medical Education

Sec. 15421. Establishment of advisory panel for recommending policies.

                        ``Part C--Other Matters

        ``Sec. 2251. Advisory Panel on Reform in Financing of Teaching 
                        Hospitals and Graduate Medical Education.

           Subtitle F--Provisions Relating to Medicare Part A

                           Part 1--Hospitals

            SUBPART A--GENERAL PROVISIONS RELATING TO HOSPITALS

Sec. 15501. Reductions in inflation updates for PPS hospitals.
Sec. 15502. Reductions in disproportionate share payment adjustments.
Sec. 15503. Payments for capital-related costs for inpatient hospital 
services.
Sec. 15504. Reduction in adjustment for indirect medical education.
Sec. 15505. Treatment of PPS-exempt hospitals.
Sec. 15506. Reduction in payments to hospitals for enrollees' bad 
debts.
Sec. 15507. Permanent extension of hemophilia pass-through.
Sec. 15508. Conforming amendment to certification of Christian Science 
providers.

             SUBPART B--PROVISIONS RELATING TO RURAL HOSPITALS

Sec. 15511. Sole community hospitals.
Sec. 15512. Clarification of treatment of EAC and RPC hospitals.
Sec. 15513. Establishment of rural emergency access care hospitals.
Sec. 15514. Classification of rural referral centers.
Sec. 15515. Floor on area wage index.

             Part 2--Payments to Skilled Nursing Facilities

Sec. 15521. Payments for routine service costs.
Sec. 15522. Incentives for cost effective management of covered non-
routine services.
Sec. 15523. Payments for routine service costs.
Sec. 15524. Reductions in payment for capital-related costs.
Sec. 15525. Treatment of items and services paid for under part B.
Sec. 15526. Certification of facilities meeting revised nursing home 
reform standards.
Sec. 15527. Medical review process.
Sec. 15528. Report by Medicare Payment Review Commission.
Sec. 15529. Effective date.

           Subtitle G--Provisions Relating to Medicare Part B

                        Part 1--Payment Reforms

Sec. 15601. Payments for physicians' services.
Sec. 15602. Elimination of formula-driven overpayments for certain 
outpatient hospital services.
Sec. 15603. Reduction in updates to payment amounts for durable medical 
equipment.
Sec. 15604. Reduction in updates to payment amounts for clinical 
diagnostic laboratory tests.
Sec. 15605. Extension of reductions in payments for costs of hospital 
outpatient services.
Sec. 15606. Freeze in payments for ambulatory surgical center services.
Sec. 15607. Rural emergency access care hospitals.

                         Part 2--Part B Premium

Sec. 15611. Extension of part B premium.
Sec. 15612. Income-related reduction in medicare subsidy.

     Part 3--Administrative Simplification for Laboratory Services

Sec. 15621. Administrative simplification for laboratory services.

             Part 4--Coverage of Certain Anti-Nausea Drugs

Sec. 15631. Coverage of oral anti-nausea drugs under chemotherapeutic 
regimen.
Sec. 15632. Effective date.

      Part 5--Coverage of Certain Services Ordered or Referred by 
                             Chiropractors

Sec. 15641. Coverage of Certain Services Ordered or Referred by 
Chiropractors.

       Subtitle H--Provisions Relating to Medicare Parts A and B

                Part 1--Payment for Home Health Services

Sec. 15701. Payment for home health services.
Sec. 15702. Maintaining savings resulting from temporary freeze on 
payment increases for home health services.
Sec. 15703. Extension of waiver of presumption of lack of knowledge of 
exclusion from coverage for home health agencies.
Sec. 15704. Study of coverage of services of Christian Science 
providers.

             Part 2--Medicare Secondary Payer Improvements

Sec. 15711. Extension and expansion of existing requirements.
Sec. 15712. Improvements in recovery of payments.
Sec. 15713. Prohibiting retroactive application of policy regarding 
ESRD beneficiaries enrolled in primary plans.

                            Part 3--Failsafe

Sec. 15721. Failsafe budget mechanism.

                 Part 4--Administrative Simplification

Sec. 15731. Standards for medicare information transactions and data 
elements.

           Part 5--Other Provisions Relating to Parts A and B

Sec. 15741. Clarification of medicare coverage of items and services 
associated with certain medical devices approved for investigational 
use.
Sec. 15742. Additional exclusion from coverage.

                   Subtitle I--Clinical Laboratories

Sec. 15801. Exemption of physician office laboratories.

Subtitle J--Lock-Box Provisions for Medicare Part B Savings from Growth 
                               Reductions

Sec. 15901. Establishment of Medicare Growth Reduction Trust Fund for 
Part B savings.

                    Subtitle A--MedicarePlus Program

          PART 1--INCREASING CHOICE UNDER THE MEDICARE PROGRAM

SEC. 15001. INCREASING CHOICE UNDER MEDICARE.

  (a) In General.--Title XVIII is amended by inserting after section 
1804 the following new section:
                   ``providing for choice of coverage
  ``Sec. 1805. (a) Choice of Coverage.--
          ``(1) In general.--Subject to the provisions of this section, 
        every individual who is entitled to benefits under part A and 
        enrolled under part B shall elect to receive benefits under 
        this title through one of the following:
                  ``(A) Through fee-for-service system.--Through the 
                provisions of parts A and B.
                  ``(B) Through a MedicarePlus product.--Through a 
                MedicarePlus product (as defined in paragraph (2)), 
                which may be--
                          ``(i) a high deductible/medisave product (and 
                        a contribution into a MedicarePlus medical 
                        savings account (MSA)),
                          ``(ii) a product offered by a provider-
                        sponsored organization,
                          ``(iii) a product offered by an organization 
                        that is a Taft-Hartley plan or association, or
                          ``(iv) a product providing for benefits on a 
                        fee-for-service or other basis.
          ``(2) MedicarePlus product defined.--For purposes this 
        section and part C, the term `MedicarePlus product' means 
        health benefits coverage offered under a policy, contract, or 
        plan by a MedicarePlus organization (as defined in section 
        1851(a)) pursuant to and in accordance with a contract under 
        section 1857.
          ``(3) Terminology relating to options.--For purposes of this 
        section and part C--
                  ``(A) Non-medicare-plus option.--An individual who 
                has made the election described in paragraph (1)(A) is 
                considered to have elected the `Non-MedicarePlus 
                option'.
                  ``(B) MedicarePlus option.--An individual who has 
                made the election described in paragraph (1)(B) to 
                obtain coverage through a MedicarePlus product is 
                considered to have elected the `MedicarePlus option' 
                for that product.
  ``(b) Special rules.--
          ``(1) Residence requirement.--Except as the Secretary may 
        otherwise provide, an individual is eligible to elect a 
        MedicarePlus product offered by a MedicarePlus organization 
        only if the organization in relation to the product serves the 
        geographic area in which the individual resides.
          ``(2) Affiliation requirements for certain products.--
                  ``(A) In general.--Subject to subparagraph (B), an 
                individual is eligible to elect a MedicarePlus product 
                offered by a limited enrollment MedicarePlus 
                organization (as defined in section 1852(c)(4)(D)) only 
                if--
                          ``(i) the individual is eligible under 
                        section 1852(c)(4) to make such election, and
                          ``(ii) in the case of a MedicarePlus 
                        organization that is a Taft-Hartley sponsor (as 
                        defined in section 1852(c)(4)), the individual 
                        elected under this section a MedicarePlus 
                        product offered by the sponsor during the first 
                        enrollment period in which the individual was 
                        eligible to make such election with respect to 
                        such sponsor.
                  ``(B) No reelection after disenrollment for certain 
                products.--An individual is not eligible to elect a 
                MedicarePlus product offered by a MedicarePlus 
                organization that is a Taft-Hartley sponsor if the 
                individual previously had elected a MedicarePlus 
                product offered by the organization and had 
                subsequently discontinued to elect such a product 
                offered by the organization.
          ``(3) Special rule for certain annuitants.--An individual is 
        not eligible to elect a high deductible/medisave product if the 
        individual is entitled to benefits under chapter 89 of title 5, 
        United States Code, as an annuitant or spouse of an annuitant.
  ``(c) Process for Exercising Choice.--
          ``(1) In general.--The Secretary shall establish a process 
        through which elections described in subsection (a) are made 
        and changed, including the form and manner in which such 
        elections are made and changed. Such elections shall be made or 
        changed only during coverage election periods specified under 
        subsection (e) and shall become effective as provided in 
        subsection (f).
          ``(2) Expedited implementation.--The Secretary shall 
        establish the process of electing coverage under this section 
        during the transition period (as defined in subsection 
        (e)(1)(B)) in such an expedited manner as will permit such an 
        election for MedicarePlus products in an area as soon as such 
        products become available in that area.
          ``(3) Coordination through medicare-plus organizations.--
                  ``(A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus product 
                offered by a MedicarePlus organization to make such 
                election through the filing of an appropriate election 
                form with the organization.
                  ``(B) Disenrollment.--Such process shall permit an 
                individual, who has elected a MedicarePlus product 
                offered by a MedicarePlus organization and who wishes 
                to terminate such election, to terminate such election 
                through the filing of an appropriate election form with 
                the organization.
          ``(4) Default.--
                  ``(A) Initial election.--
                          ``(i) In general.--Subject to clause (ii), an 
                        individual who fails to make an election during 
                        an initial election period under subsection 
                        (e)(1) is deemed to have chosen the Non-
                        MedicarePlus option.
                          ``(ii) Seamless continuation of coverage.--
                        The Secretary shall establish procedures under 
                        which individuals who are enrolled with a 
                        MedicarePlus organization at the time of the 
                        initial election period and who fail to elect 
                        to receive coverage other than through the 
                        organization are deemed to have elected an 
                        appropriate MedicarePlus product offered by the 
                        organization.
                  ``(B) Continuing periods.--An individual who has made 
                (or deemed to have made) an election under this section 
                is considered to have continued to make such election 
                until such time as--
                          ``(i) the individual changes the election 
                        under this section, or
                          ``(ii) a MedicarePlus product is 
                        discontinued, if the individual had elected 
                        such product at the time of the 
                        discontinuation.
          ``(5) Agreements with commissioner of social security to 
        promote efficient administration.--In order to promote the 
        efficient administration of this section and the MedicarePlus 
        program under part C, the Secretary may enter into an agreement 
        with the Commissioner of Social Security under which the 
        Commissioner performs administrative responsibilities relating 
        to enrollment and disenrollment in MedicarePlus products under 
        this section.
  ``(d) Provision of Beneficiary Information to Promote Informed 
Choice.--
          ``(1) In general.--The Secretary shall provide for activities 
        under this subsection to disseminate broadly information to 
        medicare beneficiaries (and prospective medicare beneficiaries) 
        on the coverage options provided under this section in order to 
        promote an active, informed selection among such options. Such 
        information shall be made available on such a timely basis 
        (such as 6 months before the date an individual would first 
        attain eligibility for medicare on the basis of age) as to 
        permit individuals to elect the MedicarePlus option during the 
        initial election period described in subsection (e)(1).
          ``(2) Use of nonfederal entities.--The Secretary shall, to 
        the maximum extent feasible, enter into contracts with 
        appropriate non-Federal entities to carry out activities under 
        this subsection.
          ``(3) Specific activities.--In carrying out this subsection, 
        the Secretary shall provide for at least the following 
        activities in all areas in which MedicarePlus products are 
        offered:
                  ``(A) Information booklet.--
                          ``(i) In general.--The Secretary shall 
                        publish an information booklet and disseminate 
                        the booklet to all individuals eligible to 
                        elect the MedicarePlus option under this 
                        section during coverage election periods.
                          ``(ii) Information included.--The booklet 
                        shall include information presented in plain 
                        English and in a standardized format 
                        regarding--
                                  ``(I) the benefits (including cost-
                                sharing) and premiums for the various 
                                MedicarePlus products in the areas 
                                involved;
                                  ``(II) the quality of such products, 
                                including consumer satisfaction 
                                information; and
                                  ``(III) rights and responsibilities 
                                of medicare beneficiaries under such 
                                products.
                          ``(iii) Periodic updating.--The booklet shall 
                        be updated on a regular basis (not less often 
                        than once every 12 months) to reflect changes 
                        in the availability of MedicarePlus products 
                        and the benefits and premiums for such 
                        products.
                  ``(B) Toll-free number.--The Secretary shall maintain 
                a toll-free number for inquiries regarding MedicarePlus 
                options and the operation of part C.
                  ``(C) General information in medicare handbook.--The 
                Secretary shall include information about the 
                MedicarePlus option provided under this section in the 
                annual notice of medicare benefits under section 1804.
  ``(e) Coverage Election Periods.--
          ``(1) Initial choice upon eligibility to make election.--
                  ``(A) In general.--In the case of an individual who 
                first becomes entitled to benefits under part A and 
                enrolled under part B after the beginning of the 
                transition period (as defined in subparagraph (B)), the 
                individual shall make the election under this section 
                during a period (of a duration and beginning at a time 
                specified by the Secretary) at the first time the 
                individual both is entitled to benefits under part A 
                and enrolled under part B. Such period shall be 
                specified in a manner so that, in the case of an 
                individual who elects a MedicarePlus product during the 
                period, coverage under the product becomes effective as 
                of the first date on which the individual may receive 
                such coverage.
                  ``(B) Transition period defined.--In this subsection, 
                the term `transition period' means, with respect to an 
                individual in an area, the period beginning on the 
                first day of the first month in which a MedicarePlus 
                product is first made available to individuals in the 
                area and ending with the month preceding the beginning 
                of the first annual, coordinated election period under 
                paragraph (3).
          ``(2) During transition period.--Subject to paragraph (6)--
                  ``(A) Continuous open enrollment into a medicare-plus 
                option.--During the transition period, an individual 
                who is eligible to make an election under this section 
                and who has elected the non-MedicarePlus option may 
                change such election to a MedicarePlus option at any 
                time.
                  ``(B) Open disenrollment before end of transition 
                period.--
                          ``(i) In general.--During the transition 
                        period, an individual who has elected a 
                        MedicarePlus option for a MedicarePlus product 
                        may change such election to another 
                        MedicarePlus product or to the non-MedicarePlus 
                        option.
                          ``(ii) Special rule.--During the transition 
                        period, an individual who has elected a high 
                        deductible/medisave product may not change such 
                        election to a MedicarePlus product that is not 
                        a high deductible/medisave product unless the 
                        individual has had such election in effect for 
                        12 months.
          ``(3) Annual, coordinated election period.--
                  ``(A) In general.--Subject to paragraph (5), each 
                individual who is eligible to make an election under 
                this section may change such election during annual, 
                coordinated election periods.
                  ``(B) Annual, coordinated election period.--For 
                purposes of this section, the term `annual, coordinated 
                election period' means, with respect to a calendar year 
                (beginning with 1998), the month of October before such 
                year.
                  ``(C) MedicarePlus health fair during october, 
                1996.--In the month of October, 1996, the Secretary 
                shall provide for a nationally coordinated educational 
                and publicity campaign to inform individuals, who are 
                eligible to elect MedicarePlus products, about such 
                products and the election process provided under this 
                section (including the annual, coordinated election 
                periods that occur in subsequent years).
          ``(4) Special 90-day disenrollment option.--
                  ``(A) In general.--In the case of the first time an 
                individual elects a MedicarePlus option (other than a 
                high deductible/medisave product) under this section, 
                the individual may discontinue such election through 
                the filing of an appropriate notice during the 90-day 
                period beginning on the first day on which the 
                individual's coverage under the MedicarePlus product 
                under such option becomes effective.
                  ``(B) Effect of discontinuation of election.--An 
                individual who discontinues an election under this 
                paragraph shall be deemed at the time of such 
                discontinuation to have elected the Non-MedicarePlus 
                option.
          ``(5) Special election periods.--An individual may 
        discontinue an election of a MedicarePlus product offered by a 
        MedicarePlus organization other than during an annual, 
        coordinated election period and make a new election under this 
        section if--
                  ``(A) the organization's or product's certification 
                under part C has been terminated or the organization 
                has terminated or otherwise discontinued providing the 
                product;
                  ``(B) in the case of an individual who has elected a 
                MedicarePlus product offered by a MedicarePlus 
                organization, the individual is no longer eligible to 
                elect the product because of a change in the 
                individual's place of residence or other change in 
                circumstances (specified by the Secretary, but not 
                including termination of membership in a qualified 
                association in the case of a product offered by a 
                qualified association or termination of the 
                individual's enrollment on the basis described in 
                clause (i) or (ii) section 1852(c)(3)(B));
                  ``(C) the individual demonstrates (in accordance with 
                guidelines established by the Secretary) that--
                          ``(i) the organization offering the product 
                        substantially violated a material provision of 
                        the organization's contract under part C in 
                        relation to the individual and the product; or
                          ``(ii) the organization (or an agent or other 
                        entity acting on the organization's behalf) 
                        materially misrepresented the product's 
                        provisions in marketing the product to the 
                        individual; or
                  ``(D) the individual meets such other conditions as 
                the Secretary may provide.
          ``(6) Special rule for high deductible/medisave products.--
        Notwithstanding the previous provisions of this subsection, an 
        individual may elect a high deductible/medisave product only 
        during an annual, coordinated election period described in 
        paragraph (3)(B) or during the month of October, 1996.
  ``(f) Effectiveness of Elections.--
          ``(1) During initial coverage election period.--An election 
        of coverage made during the initial coverage election period 
        under subsection (e)(1)(A) shall take effect upon the date the 
        individual becomes entitled to benefits under part A and 
        enrolled under part B, except as the Secretary may provide 
        (consistent with section 1838) in order to prevent retroactive 
        coverage.
          ``(2) During transition; 90-day disenrollment option.--An 
        election of coverage made under subsection (e)(2) and an 
        election to discontinue a MedicarePlus option under subsection 
        (e)(4) at any time shall take effect with the first calendar 
        month following the date on which the election is made.
          ``(3) Annual, coordinated election period and medisave 
        election.--An election of coverage made during an annual, 
        coordinated election period (as defined in subsection 
        (e)(3)(B)) in a year or for a high deductible/medisave product 
        shall take effect as of the first day of the following year.
          ``(4) Other periods.--An election of coverage made during any 
        other period under subsection (e)(5) shall take effect in such 
        manner as the Secretary provides in a manner consistent (to the 
        extent practicable) with protecting continuity of health 
        benefit coverage.
  ``(g) Effect of Election of MedicarePlus Option.--Subject to the 
provisions of section 1855(f), payments under a contract with a 
MedicarePlus organization under section 1857(a) with respect to an 
individual electing a MedicarePlus product offered by the organization 
shall be instead of the amounts which (in the absence of the contract) 
would otherwise be payable under parts A and B for items and services 
furnished to the individual.
  ``(h) Administration.--
          ``(1) In general.--This part and sections 1805 and 1876 shall 
        be administered through an operating division (A) that is 
        established or identified by the Secretary in the Department of 
        Health and Human Services, (B) that is separate from the Health 
        Care Financing Administration, and (C) the primary function of 
        which is the administration of this part and such sections. The 
        director of such division shall be of equal pay and rank to 
        that of the individual responsible for overall administration 
        of parts A and B.
          ``(2) Transfer authority.--The Secretary shall transfer such 
        personnel, administrative support systems, assets, records, 
        funds, and other resources in the Health Care Financing 
        Administration to the operating division referred to in 
        paragraph (1) as are used in the administration of section 1876 
        and as may be required to implement the provisions referred to 
        in such paragraph promptly and efficiently.''.

SEC. 15002. MEDICAREPLUS PROGRAM.

  (a) In General.--Title XVIII is amended by redesignating part C as 
part D and by inserting after part B the following new part:

             ``Part C--Provisions Relating to MedicarePlus

``requirements for medicareplus organizations; high deductible/medisave 
                                products
  ``Sec. 1851. (a) MedicarePlus Organization Defined.--In this part, 
subject to the succeeding provisions of this section, the term 
`MedicarePlus organization' means a public or private entity that is 
certified under section 1857 as meeting the requirements and standards 
of this part for such an organization.
  ``(b) Organized and Licensed Under State Law.--
          ``(1) In general.--A MedicarePlus organization shall be 
        organized and licensed under State law to offer health 
        insurance or health benefits coverage in each State in which it 
        offers a MedicarePlus product.
          ``(2) Exception for taft-hartley sponsors.--Paragraph (1) 
        shall not apply to an MedicarePlus organization that is a Taft-
        Hartley sponsor (as defined in section 1852(c)(4)).
          ``(3) Exception for provider-sponsored organizations.--
        Paragraph (1) shall not apply to a MedicarePlus organization 
        that is a provider-sponsored organization (as defined in 
        section 1854(a)) except to the extent provided under section 
        1857(c).
          ``(4) Exception for qualified associations.--Paragraph (1) 
        shall not apply to a MedicarePlus organization that is a 
        qualified association (as defined in section 1852(c)(4)(B)).
  ``(c) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for deductibles, coinsurance, and copayments) for 
the provision of health care services to enrolled members by a payment 
which is paid on a periodic basis without regard to the date the health 
care services are provided and which is fixed without regard to the 
frequency, extent, or kind of health care service actually provided to 
a member.
  ``(d) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective basis 
for the provision of the health care services (other than hospice care) 
for which benefits are required to be provided under section 
1852(a)(1), except that the organization--
          ``(1) may obtain insurance or make other arrangements for the 
        cost of providing to any enrolled member such services the 
        aggregate value of which exceeds $5,000 in any year,
          ``(2) may obtain insurance or make other arrangements for the 
        cost of such services provided to its enrolled members other 
        than through the organization because medical necessity 
        required their provision before they could be secured through 
        the organization,
          ``(3) may obtain insurance or make other arrangements for not 
        more than 90 percent of the amount by which its costs for any 
        of its fiscal years exceed 115 percent of its income for such 
        fiscal year, and
          ``(4) may make arrangements with physicians or other health 
        professionals, health care institutions, or any combination of 
        such individuals or institutions to assume all or part of the 
        financial risk on a prospective basis for the provision of 
        basic health services by the physicians or other health 
        professionals or through the institutions.
In the case of a MedicarePlus organization that is a Taft-Hartley 
sponsor (as defined in section 1852(c)(4)(A)) or a qualified 
association (as defined in section 1852(c)(4)(B)), this subsection 
shall not apply with respect to MedicarePlus products offered by such 
organization and issued by an organization to which subsection (b)(1) 
applies or by a provider-sponsored organization (as defined in section 
1854(a)).
  ``(e) Provision Against Risk of Insolvency.--
          ``(1) In general.--Each MedicarePlus organization shall meet 
        standards under section 1856 relating to the financial solvency 
        and capital adequacy of the organization. Such standards shall 
        take into account the nature and type of MedicarePlus products 
        offered by the organization.
          ``(2) Treatment of taft-hartley sponsors.--An entity that is 
        a Taft-Hartley sponsor is deemed to meet the requirement of 
        paragraph (1).
          ``(3) Treatment of certain qualified associations.--An entity 
        that is a qualified association is deemed to meet the 
        requirement of paragraph (1) with respect to MedicarePlus 
        products offered by such association and issued by an 
        organization to which subsection (b)(1) applies or by a 
        provider-sponsored organization.
  ``(f) High Deductible/Medisave Product Defined.--
          ``(1) In general.--In this part, the term `high deductible/
        medisave product' means a MedicarePlus product that--
                  ``(A) provides reimbursement for at least the items 
                and services described in section 1852(a)(1) in a year 
                but only after the enrollee incurs countable expenses 
                (as specified under the product) equal to the amount of 
                a deductible (described in paragraph (2));
                  ``(B) counts as such expenses (for purposes of such 
                deductible) at least all amounts that would have been 
                payable under parts A and B or by the enrollee if the 
                enrollee had elected to receive benefits through the 
                provisions of such parts; and
                  ``(C) provides, after such deductible is met for a 
                year and for all subsequent expenses for benefits 
                referred to in subparagraph (A) in the year, for a 
                level of reimbursement that is not less than--
                          ``(i) 100 percent of such expenses, or
                          ``(ii) 100 percent of the amounts that would 
                        have been paid (without regard to any 
                        deductibles or coinsurance) under parts A and B 
                        with respect to such expenses,
                whichever is less. Such term does not include the 
                MedicarePlus MSA itself or any contribution into such 
                account.
          ``(2) Deductible.--The amount of deductible under a high 
        deductible/medisave product--
                  ``(A) for contract year 1997 shall be not more than 
                $10,000; and
                  ``(B) for a subsequent contract year shall be not 
                more than the maximum amount of such deductible for the 
                previous contract year under this paragraph increased 
                by the national average per capita growth rate under 
                section 1855(c)(3) for the year.
        If the amount of the deductible under subparagraph (B) is not a 
        multiple of $50, the amount shall be rounded to the nearest 
        multiple of $50.
  ``(g) Organizations Treated as MedicarePlus Organizations During 
Transition.--Any of the following organizations shall be considered to 
qualify as a MedicarePlus organization for contract years beginning 
before January 1, 1998:
          ``(1) Health maintenance organizations.--An organization that 
        is organized under the laws of any State and that is a 
        qualified health maintenance organization (as defined in 
        section 1310(d) of the Public Health Service Act), an 
        organization recognized under State law as a health maintenance 
        organization, or a similar organization regulated under State 
        law for solvency in the same manner and to the same extent as 
        such a health maintenance organization.
          ``(2) Licensed insurers.--An organization that is organized 
        under the laws of any State and--
                  ``(A) is licensed by a State agency as an insurer for 
                the offering of health benefit coverage, or
                  ``(B) is licensed by a State agency as a service 
                benefit plan,
        but only for individuals residing in an area in which the 
        organization is licensed to offer health insurance coverage.
          ``(3) Current risk-contractors.--An organization that is an 
        eligible organization (as defined in section 1876(b)) and that 
        has a risk-sharing contract in effect under section 1876 as of 
        the date of the enactment of this section.
``requirements relating to benefits, provision of services, enrollment, 
                              and premiums
  ``Sec. 1852. (a) Benefits Covered.--
          ``(1) In general.--Except as provided in section 1851(f)(1) 
        with respect to high deductible/medisave products, each 
        MedicarePlus product offered under this part shall provide 
        benefits for at least the items and services for which benefits 
        are available under parts A and B consistent with the standards 
        for coverage of such items and services applicable under this 
        title.
          ``(2) Organization as secondary payer.--Notwithstanding any 
        other provision of law, a MedicarePlus organization may (in the 
        case of the provision of items and services to an individual 
        under this part under circumstances in which payment under this 
        title is made secondary pursuant to section 1862(b)(2)) charge 
        or authorize the provider of such services to charge, in 
        accordance with the charges allowed under such law or policy--
                  ``(A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is to pay 
                for the provision of such services, or
                  ``(B) such individual to the extent that the 
                individual has been paid under such law, plan, or 
                policy for such services.
          ``(3) Satisfaction of requirement.--A MedicarePlus product 
        (other than a high deductible/medisave product) offered by a 
        MedicarePlus organization satisfies paragraph (1) with respect 
        to benefits for items and services if the following 
        requirements are met:
                  ``(A) Fee for service providers.--In the case of 
                benefits furnished through a provider that does not 
                have a contract with the organization, the product 
                provides for at least the dollar amount of payment for 
                such items and services as would otherwise be provided 
                under parts A and B.
                  ``(B) Participating providers.--In the case of 
                benefits furnished through a provider that has such a 
                contract, the individual's liability for payment for 
                such items and services does not exceed (after taking 
                into account any deductible, which does not exceed any 
                deductible under parts A and B) the lesser of the 
                following:
                          ``(i) Non-medicareplus liability.--The amount 
                        of the liability that the individual would have 
                        had (based on the provider being a 
                        participating provider) if the individual had 
                        elected the non-MedicarePlus option.
                          ``(ii) Medicare coinsurance applied to 
                        product payment rates.--The applicable 
                        coinsurance or copayment rate (that would have 
                        applied under the non-MedicarePlus option) of 
                        the payment rate provided under the contract.
  ``(b) Antidiscrimination.--A MedicarePlus organization may not deny, 
limit, or condition the coverage or provision of benefits under this 
part based on the health status, claims experience, receipt of health 
care, medical history, or lack of evidence of insurability, of an 
individual.
  ``(c) Guaranteed Issue and Renewal.--
          ``(1) In general.--Except as provided in this subsection, a 
        MedicarePlus organization shall provide that at any time during 
        which elections are accepted under section 1805 with respect to 
        a MedicarePlus product offered by the organization, the 
        organization will accept without restrictions individuals who 
        are eligible to make such election.
          ``(2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a MedicarePlus 
        product it offers, has a capacity limit and the number of 
        eligible individuals who elect the product under section 1805 
        exceeds the capacity limit, the organization may limit the 
        election of individuals of the product under such section but 
        only if priority in election is provided--
                  ``(A) first to such individuals as have elected the 
                product at the time of the determination, and
                  ``(B) then to other such individuals in such a manner 
                that does not discriminate among the individuals (who 
                seek to elect the product) on a basis described in 
                paragraph (1).
          ``(3) Limitation on termination of election.--
                  ``(A) In general.--Subject to subparagraph (B), a 
                MedicarePlus organization may not for any reason 
                terminate the election of any individual under section 
                1805 for a MedicarePlus product it offers.
                  ``(B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an individual's 
                election under section 1805 with respect to a 
                MedicarePlus product it offers if--
                          ``(i) any premiums required with respect to 
                        such product are not paid on a timely basis 
                        (consistent with standards under section 1856 
                        that provide for a grace period for late 
                        payment of premiums),
                          ``(ii) the individual has engaged in 
                        disruptive behavior (as specified in such 
                        standards), or
                          ``(iii) the product is terminated with 
                        respect to all individuals under this part.
                Any individual whose election is so terminated is 
                deemed to have elected the Non-MedicarePlus option (as 
                defined in section 1805(a)(3)(A)).
                  ``(C) Organization obligation with respect to 
                election forms.--Pursuant to a contract under section 
                1858, each MedicarePlus organization receiving an 
                election form under section 1805(c)(2) shall transmit 
                to the Secretary (at such time and in such manner as 
                the Secretary may specify) a copy of such form or such 
                other information respecting the election as the 
                Secretary may specify.
          ``(4) Special rules for limited enrollment medicareplus 
        organizations.--
                  ``(A) Taft-hartley sponsors.--
                          ``(i) In general.--Subject to subparagraph 
                        (C), a MedicarePlus organization that is a 
                        Taft-Hartley sponsor (as defined in clause 
                        (ii)) shall limit eligibility of enrollees 
                        under this part for MedicarePlus products it 
                        offers to individuals who are entitled to 
                        obtain benefits through such products under the 
                        terms of an applicable collective bargaining 
                        agreement.
                          ``(ii) Taft-Hartley sponsor.--In this part 
                        and section 1805, the term `Taft-Hartley 
                        sponsor' means, in relation to a group health 
                        plan that is established or maintained by two 
                        or more employers or jointly by one or more 
                        employers and one or more employee 
                        organizations, the association, committee, 
                        joint board of trustees, or other similar group 
                        of representatives of parties who establish or 
                        maintain the plan.
                  ``(B) Qualified associations.--
                          ``(i) In general.--Subject to subparagraph 
                        (C), a MedicarePlus organization that is a 
                        qualified association (as defined in clause 
                        (iii)) shall limit eligibility of individuals 
                        under this part for products it offers to 
                        individuals who are members of the association 
                        (or who are spouses of such individuals).
                          ``(ii) Limitation on termination of 
                        coverage.--Such a qualifying association 
                        offering a MedicarePlus product to an 
                        individual may not terminate coverage of the 
                        individual on the basis that the individual is 
                        no longer a member of the association except 
                        pursuant to a change of election during an open 
                        election period occurring on or after the date 
                        of the termination of membership.
                          ``(iii) Qualified association.--In this part 
                        and section 1805, the term `qualified 
                        association' means an association, religious 
                        fraternal organization, or other organization 
                        (which may be a trade, industry, or 
                        professional association, a chamber of 
                        commerce, or a public entity association) that 
                        the Secretary finds--
                                  ``(I) has been formed for purposes 
                                other than the sale of any health 
                                insurance and does not restrict 
                                membership based on the health status, 
                                claims experience, receipt of health 
                                care, medical history, or lack of 
                                evidence of insurability, of an 
                                individual,
                                  ``(II) does not exist solely or 
                                principally for the purpose of selling 
                                insurance, and
                                  ``(III) has at least 1,000 individual 
                                members or 200 employer members.
                        Such term includes a subsidiary or corporation 
                        that is wholly owned by one or more qualified 
                        organizations.
                  ``(C) Limitation.--Rules of eligibility to carry out 
                the previous subparagraphs of this paragraph shall not 
                have the effect of denying eligibility to individuals 
                on the basis of health status, claims experience, 
                receipt of health care, medical history, or lack of 
                evidence of insurability.
                  ``(D) Limited enrollment medicareplus organization.--
                In this part and section 1805, the term `limited 
                enrollment MedicarePlus organization' means a 
                MedicarePlus organization that is a Taft-Hartley 
                sponsor or a qualified association.
                  ``(E) Employer, etc.--In this paragraph, the terms 
                `employer', `employee organization', and `group health 
                plan' have the meanings given such terms for purposes 
                of part 6 of subtitle B of title I of the Employee 
                Retirement Income Security Act of 1974.
  ``(d) Submission and Charging of Premiums.--
          ``(1) In general.--Each MedicarePlus organization shall file 
        with the Secretary each year, in a form and manner and at a 
        time specified by the Secretary--
                  ``(A) the amount of the monthly premiums for coverage 
                under each MedicarePlus product it offers under this 
                part in each payment area (as determined for purposes 
                of section 1855) in which the product is being offered; 
                and
                  ``(B) the enrollment capacity in relation to the 
                product in each such area.
          ``(2) Amounts of premiums charged.--The amount of the monthly 
        premium charged by a MedicarePlus organization for a 
        MedicarePlus product offered in a payment area to an individual 
        under this part shall be equal to the amount (if any) by 
        which--
                  ``(A) the amount of the monthly premium for the 
                product for the period involved, as established under 
                paragraph (3) and submitted under paragraph (1), 
                exceeds
                  ``(B)(i) \1/12\ of the annual MedicarePlus capitation 
                rate specified in section 1855(b)(2) for the area and 
                period involved, or (ii) in the case of a high 
                deductible/medisave product, the monthly adjusted 
                MedicarePlus capitation rate specified in section 
                1855(b)(1) for the individual and period involved.
          ``(3) Uniform premium.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), the premiums charged by a MedicarePlus 
                organization under this part may not vary among 
                individuals who reside in the same payment area.
                  ``(B) Exception for high deductible/medisave 
                products.--A MedicarePlus organization shall establish 
                premiums for any high deductible/medisave product it 
                offers in a payment area based on each of the risk 
                adjustment categories established for purposes of 
                determining the amount of the payment to MedicarePlus 
                organizations under section 1855(b)(1) and using the 
                identical demographic and other adjustments among such 
                categories as are used for such purposes.
          ``(4) Terms and conditions of imposing premiums.--Each 
        MedicarePlus organization shall permit the payment of monthly 
        premiums on a monthly basis and may terminate election of 
        individuals for a MedicarePlus product for failure to make 
        premium payments only in accordance with subsection (c)(3)(B).
          ``(5) Relation of premiums and cost-sharing to benefits.--In 
        no case may the portion of a MedicarePlus organization's 
        premium rate and the actuarial value of its deductibles, 
        coinsurance, and copayments charged (to the extent attributable 
        to the minimum benefits described in subsection (a)(1) and not 
        count any amount attributable to balance billing) to 
        individuals who are enrolled under this part with the 
        organization exceed the actuarial value of the coinsurance and 
        deductibles that would be applicable on the average to 
        individuals enrolled under this part with the organization (or, 
        if the Secretary finds that adequate data are not available to 
        determine that actuarial value, the actuarial value of the 
        coinsurance and deductibles applicable on the average to 
        individuals in the area, in the State, or in the United States, 
        eligible to enroll under this part with the organization, or 
        other appropriate data) and entitled to benefits under part A 
        and enrolled under part B if they were not members of a 
        MedicarePlus organization.
  ``(e) Requirement for Additional Benefits, Part B Premium Discount 
Rebates, or Both.--
          ``(1) Requirement.--
                  ``(A) In general.--Each MedicarePlus organization (in 
                relation to a MedicarePlus product it offers) shall 
                provide that if there is an excess amount (as defined 
                in subparagraph (B)) for the product for a contract 
                year, subject to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify), a monetary rebate (paid on a 
                monthly basis) of the part B monthly premium, or a 
                combination thereof, in an total value which is at 
                least equal to the adjusted excess amount (as defined 
                in subparagraph (C)).
                  ``(B) Excess amount.--For purposes of this paragraph, 
                the `excess amount', for an organization for a product, 
                is the amount (if any) by which--
                          ``(i) the average of the capitation payments 
                        made to the organization under this part for 
                        the product at the beginning of contract year, 
                        exceeds
                          ``(ii) the actuarial value of the minimum 
                        benefits described in subsection (a)(1) under 
                        the product for individuals under this part, as 
                        determined based upon an adjusted community 
                        rate described in paragraph (5).
                  ``(C) Adjusted excess amount.--For purposes of this 
                paragraph, the `adjusted excess amount', for an 
                organization for a product, is the excess amount 
                reduced to reflect any amount withheld and reserved for 
                the organization for the year under paragraph (3).
                  ``(D) No application to high deductible/medisave 
                product.--Subparagraph (A) shall not apply to a high 
                deductible/medisave product.
                  ``(E) Uniform application.--This paragraph shall be 
                applied uniformly for all enrollees for a product in a 
                service area.
                  ``(F) Construction.--Nothing in this subsection shall 
                be construed as preventing a MedicarePlus organization 
                from providing health care benefits that are in 
                addition to the benefits otherwise required to be 
                provided under this paragraph and from imposing a 
                premium for such additional benefits.
          ``(2) Limitation on amount of part b premium discount 
        rebate.--In no case shall the amount of a part B premium 
        discount rebate under paragraph (1)(A) exceed, with respect to 
        a month, the amount of premiums imposed under part B (not 
        taking into account section 1839(b) (relating to penalty for 
        late enrollment) or 1839(h) (relating to affluence testing)), 
        for the individual for the month. Except as provided in the 
        previous sentence, a MedicarePlus organization is not 
        authorized to provide for cash or other monetary rebates as an 
        inducement for enrollment or otherwise.
          ``(3) Stabilization fund.--A MedicarePlus organization may 
        provide that a part of the value of an excess actuarial amount 
        described in paragraph (1) be withheld and reserved in the 
        Federal Hospital Insurance Trust Fund and in the Federal 
        Supplementary Medical Insurance Trust Fund (in such proportions 
        as the Secretary determines to be appropriate) by the Secretary 
        for subsequent annual contract periods, to the extent required 
        to stabilize and prevent undue fluctuations in the additional 
        benefits and rebates offered in those subsequent periods by the 
        organization in accordance with such paragraph. Any of such 
        value of amount reserved which is not provided as additional 
        benefits described in paragraph (1)(A) to individuals electing 
        the MedicarePlus product in accordance with such paragraph 
        prior to the end of such periods, shall revert for the use of 
        such trust funds.
          ``(4) Determination based on insufficient data.--For purposes 
        of this subsection, if the Secretary finds that there is 
        insufficient enrollment experience (including no enrollment 
        experience in the case of a provider-sponsored organization) to 
        determine an average of the capitation payments to be made 
        under this part at the beginning of a contract period, the 
        Secretary may determine such an average based on the enrollment 
        experience of other contracts entered into under this part.
          ``(5) Adjusted community rate.--
                  ``(A) In general.--For purposes of this subsection, 
                subject to subparagraph (B), the term `adjusted 
                community rate' for a service or services means, at the 
                election of a MedicarePlus organization, either--
                          ``(i) the rate of payment for that service or 
                        services which the Secretary annually 
                        determines would apply to an individual 
                        electing a MedicarePlus product under this part 
                        if the rate of payment were determined under a 
                        `community rating system' (as defined in 
                        section 1302(8) of the Public Health Service 
                        Act, other than subparagraph (C)), or
                          ``(ii) such portion of the weighted aggregate 
                        premium, which the Secretary annually estimates 
                        would apply to such an individual, as the 
                        Secretary annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the utilization 
                characteristics of the individuals electing coverage 
                under this part and the utilization characteristics of 
                the other enrollees with the organization (or, if the 
                Secretary finds that adequate data are not available to 
                adjust for those differences, the differences between 
                the utilization characteristics of individuals 
                selecting other MedicarePlus coverage, or individuals 
                in the area, in the State, or in the United States, 
                eligible to elect MedicarePlus coverage under this part 
                and the utilization characteristics of the rest of the 
                population in the area, in the State, or in the United 
                States, respectively).
                  ``(B) Special rule for provider-sponsored 
                organizations.--In the case of a MedicarePlus 
                organization that is a provider-sponsored organization, 
                the adjusted community rate under subparagraph (A) for 
                a MedicarePlus product may be computed (in a manner 
                specified by the Secretary) using data in the general 
                commercial marketplace or (during a transition period) 
                based on the costs incurred by the organization in 
                providing such a product.
  ``(f) Rules Regarding Physician Participation.--
          ``(1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the participation 
        (under an agreement between a physician and the organization) 
        of physicians under MedicarePlus products offered by the 
        organization under this part. Such procedures shall include--
                  ``(A) providing notice of the rules regarding 
                participation,
                  ``(B) providing written notice of participation 
                decisions that are adverse to physicians, and
                  ``(C) providing a process within the organization for 
                appealing adverse decisions, including the presentation 
                of information and views of the physician regarding 
                such decision.
          ``(2) Consultation in medical policies.--A MedicarePlus 
        organization shall consult with physicians who have entered 
        into participation agreements with the organization regarding 
        the organization's medical policy, quality, and medical 
        management procedures.
          ``(3) Limitations on physician incentive plans.--
                  ``(A) In general.--Each MedicarePlus organization may 
                not operate any physician incentive plan (as defined in 
                subparagraph (B)) unless the following requirements are 
                met:
                          ``(i) No specific payment is made directly or 
                        indirectly under the plan to a physician or 
                        physician group as an inducement to reduce or 
                        limit medically necessary services provided 
                        with respect to a specific individual enrolled 
                        with the organization.
                          ``(ii) If the plan places a physician or 
                        physician group at substantial financial risk 
                        (as determined by the Secretary) for services 
                        not provided by the physician or physician 
                        group, the organization--
                                  ``(I) provides stop-loss protection 
                                for the physician or group that is 
                                adequate and appropriate, based on 
                                standards developed by the Secretary 
                                that take into account the number of 
                                physicians placed at such substantial 
                                financial risk in the group or under 
                                the plan and the number of individuals 
                                enrolled with the organization who 
                                receive services from the physician or 
                                the physician group, and
                                  ``(II) conducts periodic surveys of 
                                both individuals enrolled and 
                                individuals previously enrolled with 
                                the organization to determine the 
                                degree of access of such individuals to 
                                services provided by the organization 
                                and satisfaction with the quality of 
                                such services.
                          ``(iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to permit the 
                        Secretary to determine whether the plan is in 
                        compliance with the requirements of this 
                        subparagraph.
                  ``(B) Physician incentive plan defined.--In this 
                paragraph, the term `physician incentive plan' means 
                any compensation arrangement between a MedicarePlus 
                organization and a physician or physician group that 
                may directly or indirectly have the effect of reducing 
                or limiting services provided with respect to 
                individuals enrolled with the organization under this 
                part.
          ``(4) Exception for certain fee-for-service plans.--The 
        previous provisions of this subsection shall not apply in the 
        case of a MedicarePlus organization in relation to a 
        MedicarePlus product if the organization does not have 
        agreements between physicians and the organization for the 
        provision of benefits under the product.
  ``(g) Provision of Information.--A MedicarePlus organization shall 
provide the Secretary with such information on the organization and 
each MedicarePlus product it offers as may be required for the 
preparation of the information booklet described in section 
1805(d)(3)(A).
  ``(h) Coordinated Acute and Long-term Care Benefits under a 
MedicarePlus Product.--Nothing in this part shall be construed as 
preventing a State from coordinating benefits under its MediGrant 
program under title XXI with those provided under a MedicarePlus 
product in a manner that assures continuity of a full-range of acute 
care and long-term care services to poor elderly or disabled 
individuals eligible for benefits under this title and under such 
program.
  ``(i) Transitional File and Use for Certain Requirements.--
          ``(1) In general.--In the case of a MedicarePlus product 
        proposed to be offered before the end of the transition period 
        (as defined in section1805(e)(1)(B)), by a MedicarePlus 
        organization described in section 1851(g)(3) or by a 
        MedicarePlus organization with a contract in effect under 
        section 1858, if the organization submits complete information 
        to the Secretary regarding the product demonstrating that the 
        product meets the requirements and standards under subsections 
        (a), (d), and (e) (relating to benefits and premiums), the 
        product shall be deemed as meeting such requirements and 
        standards under such subsections unless the Secretary 
        disapproves the product within 60 days after the date of 
        submission of the complete information.
          ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed as waiving the requirement of a contract under 
        section 1858 or waiving requirements and standards not referred 
        to in paragraph (1).
                     ``patient protection standards
  ``Sec. 1853. (a) Disclosure to Enrollees.--A MedicarePlus 
organization shall disclose in clear, accurate, and standardized form, 
information regarding all of the following for each MedicarePlus 
product it offers:
          ``(1) Benefits under the MedicarePlus product offered, 
        including exclusions from coverage and, if it is a high 
        deductible/medisave product, a comparison of benefits under 
        such a product with benefits under other MedicarePlus products.
          ``(2) Rules regarding prior authorization or other review 
        requirements that could result in nonpayment.
          ``(3) Potential liability for cost-sharing for out-of-network 
        services.
          ``(4) The number, mix, and distribution of participating 
        providers.
          ``(5) The financial obligations of the enrollee, including 
        premiums, deductibles, co-payments, and maximum limits on out-
        of-pocket losses for items and services (both in and out of 
        network).
          ``(6) Statistics on enrollee satisfaction with the product 
        and organization, including rates of reenrollment.
          ``(7) Enrollee rights and responsibilities, including the 
        grievance process provided under subsection (f).
          ``(8) A statement that the use of the 911 emergency telephone 
        number is appropriate in emergency situations and an 
        explanation of what constitutes an emergency situation.
          ``(9) A description of the organization's quality assurance 
        program under subsection (d).
Such information shall be disclosed to each enrollee under this part at 
the time of enrollment and at least annually thereafter.
  ``(b) Access to Services.--
          ``(1) In general.--A MedicarePlus organization offering a 
        MedicarePlus product may restrict the providers from whom the 
        benefits under the product are provided so long as--
                  ``(A) the organization makes such benefits available 
                and accessible to each individual electing the product 
                within the product service area with reasonable 
                promptness and in a manner which assures continuity in 
                the provision of benefits;
                  ``(B) when medically necessary the organization makes 
                such benefits available and accessible 24 hours a day 
                and 7 days a week;
                  ``(C) the product provides for reimbursement with 
                respect to services which are covered under 
                subparagraphs (A) and (B) and which are provided to 
                such an individual other than through the organization, 
                if--
                          ``(i) the services were medically necessary 
                        and immediately required because of an 
                        unforeseen illness, injury, or condition, and
                          ``(ii) it was not reasonable given the 
                        circumstances to obtain the services through 
                        the organization; and
                  ``(D) coverage is provided for emergency services (as 
                defined in paragraph (4)) without regard to prior 
                authorization or the emergency care provider's 
                contractual relationship with the organization.
          ``(2) Minimum payment levels where providing point-of-service 
        coverage.--If a MedicarePlus product provides benefits for 
        items and services (not described in paragraph (1)(C)) through 
        a network of providers and also permits payment to be made 
        under the product for such items and services not provided 
        through such a network, the payment level under the product 
        with respect to such items and services furnished outside the 
        network shall be at least 70 percent (or, if the effective 
        cost-sharing rate is 50 percent, at least 35 percent) of the 
        lesser of--
                  ``(A) the payment basis (determined without regard to 
                deductibles and cost-sharing) that would have applied 
                for such items and services under parts A and B, or
                  ``(B) the amount charged by the entity furnishing 
                such items and services.
          ``(3) Protection of enrollees for certain emergency 
        services.--
                  ``(A) Participating providers.--In the case of 
                emergency services described in subparagraph (C) which 
                are furnished by a participating physician or provider 
                of services to an individual enrolled with a 
                MedicarePlus organization under this section, the 
                applicable participation agreement is deemed to provide 
                that the physician or provider of services will accept 
                as payment in full from the organization the amount 
                that would be payable to the physician or provider of 
                services under part B and from the individual under 
                such part, if the individual were not enrolled with 
                such an organization under this part.
                  ``(B) Nonparticipating providers.--In the case of 
                emergency services described in subparagraph (C) which 
                are furnished by a nonparticipating physician, the 
                limitations on actual charges for such services 
                otherwise applicable under part B (to services 
                furnished by individuals not enrolled with a 
                MedicarePlus organization under this section) shall 
                apply in the same manner as such limitations apply to 
                services furnished to individuals not enrolled with 
                such an organization.
                  ``(C) Emergency services described.--The emergency 
                services described in this subparagraph are emergency 
                services which are furnished to an enrollee of a 
                MedicarePlus organization under this part by a 
                physician or provider of services that is not under a 
                contract with the organization.
          ``(4) Definition of emergency services.--In this subsection, 
        the term `emergency services' means, with respect to an 
        individual enrolled with an organization, covered inpatient and 
        outpatient services that--
                  ``(A) are furnished by an appropriate source other 
                than the organization,
                  ``(B) are needed immediately because of an injury or 
                sudden illness, and
                  ``(C) are needed because the time required to reach 
                the organization's providers or suppliers would have 
                meant risk of serious damage to the patient's health.
  ``(c) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
          ``(1) to safeguard the privacy of individually identifiable 
        enrollee information, and
          ``(2) to maintain accurate and timely medical records for 
        enrollees.
  ``(d) Quality Assurance Program.--
          ``(1) In general.--Each MedicarePlus organization must have 
        arrangements, established in accordance with regulations of the 
        Secretary, for an ongoing quality assurance program for health 
        care services it provides to such individuals.
          ``(2) Elements of program.--The quality assurance program 
        shall--
                  ``(A) stress health outcomes;
                  ``(B) provide for the establishment of written 
                protocols for utilization review, based on current 
                standards of medical practice;
                  ``(C) provide review by physicians and other health 
                care professionals of the process followed in the 
                provision of such health care services;
                  ``(D) monitors and evaluates high volume and high 
                risk services and the care of acute and chronic 
                conditions;
                  ``(E) evaluates the continuity and coordination of 
                care that enrollees receive;
                  ``(F) has mechanisms to detect both underutilization 
                and overutilization of services;
                  ``(G) after identifying areas for improvement, 
                establishes or alters practice parameters;
                  ``(H) takes action to improve quality and assesses 
                the effectiveness of such action through systematic 
                follow-up;
                  ``(I) makes available information on quality and 
                outcomes measures to facilitate beneficiary comparison 
                and choice of health coverage options (in such form and 
                on such quality and outcomes measures as the Secretary 
                determines to be appropriate);
                  ``(J) is evaluated on an ongoing basis as to its 
                effectiveness; and
                  ``(K) provide for external accreditation or review, 
                by a utilization and quality control peer review 
                organization under part B of title XI or other 
                qualified independent review organization, of the 
                quality of services furnished by the organization meets 
                professionally recognized standards of health care 
                (including providing adequate access of enrollees to 
                services).
          ``(3) Exception for certain fee-for-service plans.--Paragraph 
        (1) and subsection (c)(2) shall not apply in the case of a 
        MedicarePlus organization in relation to a MedicarePlus product 
        to the extent the organization provides for coverage of 
        benefits without restrictions relating to utilization and 
        without regard to whether the provider has a contract or other 
        arrangement with the plan for the provision of such benefits.
          ``(4) Treatment of accreditation.--The Secretary shall 
        provide that a MedicarePlus organization is deemed to meet the 
        requirements of paragraphs (1) and (2) of this subsection and 
        subsection (c) if the organization is accredited (and 
        periodically reaccredited) by a private organization under a 
        process that the Secretary has determined assures that the 
        organization meets standards that are no less stringent than 
        the standards established under section 1856 to carry out this 
        subsection and subsection (c).
  ``(e) Coverage Determinations.--
          ``(1) Decisions on nonemergency care.--A MedicarePlus 
        organization shall make determinations regarding authorization 
        requests for nonemergency care on a timely basis, depending on 
        the urgency of the situation.
          ``(2) Appeals.--
                  ``(A) In general.--Appeals from a determination of an 
                organization denying coverage shall be decided within 
                30 days of the date of receipt of medical information, 
                but not later than 60 days after the date of the 
                decision.
                  ``(B) Physician decision on certain appeals.--Appeal 
                decisions relating to a determination to deny coverage 
                based on a lack of medical necessity shall be made only 
                by a physician.
                  ``(C) Emergency cases.--Appeals from such a 
                determination involving a life-threatening or emergency 
                situation shall be decided on an expedited basis.
  ``(f) Grievances and Appeals.--
          ``(1) Grievance mechanism.--Each MedicarePlus organization 
        must provide meaningful procedures for hearing and resolving 
        grievances between the organization (including any entity or 
        individual through which the organization provides health care 
        services) and enrollees under this part.
          ``(2) Appeals.--An enrollee with an organization under this 
        part who is dissatisfied by reason of the enrollee's failure to 
        receive any health service to which the enrollee believes the 
        enrollee is entitled and at no greater charge than the enrollee 
        believes the enrollee is required to pay is entitled, if the 
        amount in controversy is $100 or more, to a hearing before the 
        Secretary to the same extent as is provided in section 205(b), 
        and in any such hearing the Secretary shall make the 
        organization a party. If the amount in controversy is $1,000 or 
        more, the individual or organization shall, upon notifying the 
        other party, be entitled to judicial review of the Secretary's 
        final decision as provided in section 205(g), and both the 
        individual and the organization shall be entitled to be parties 
        to that judicial review. In applying sections 205(b) and 205(g) 
        as provided in this subparagraph, and in applying section 
        205(l) thereto, any reference therein to the Commissioner of 
        Social Security or the Social Security Administration shall be 
        considered a reference to the Secretary or the Department of 
        Health and Human Services, respectively.
          ``(3) Coordination with secretary of labor.--The Secretary 
        shall consult with the Secretary of Labor so as to ensure that 
        the requirements of this subsection, as they apply in the case 
        of grievances referred to in paragraph (1) to which section 503 
        of the Employee Retirement Income Security Act of 1974 applies, 
        are applied in a manner consistent with the requirements of 
        such section 503.
  ``(g) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) (relating to 
maintaining written policies and procedures respecting advance 
directives).
  ``(h) Approval of Marketing Materials.--
          ``(1) Submission.--Each MedicarePlus organization may not 
        distribute marketing materials unless--
                  ``(A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material to the Secretary for review, and
                  ``(B) the Secretary has not disapproved the 
                distribution of such material.
          ``(2) Review.--The standards established under section 1856 
        shall include guidelines for the review of all such material 
        submitted and under such guidelines the Secretary shall 
        disapprove such material if the material is materially 
        inaccurate or misleading or otherwise makes a material 
        misrepresentation.
          ``(3) Deemed approval (1-stop shopping).--In the case of 
        material that is submitted under paragraph (1)(A) to the 
        Secretary or a regional office of the Department of Health and 
        Human Services and the Secretary or the office has not 
        disapproved the distribution of marketing materials under 
        paragraph (1)(B) with respect to a MedicarePlus product in an 
        area, the Secretary is deemed not to have disapproved such 
        distribution in all other areas covered by the product and 
        organization.
          ``(4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair marketing 
        standards in relation to MedicarePlus products offered under 
        this part, included in the standards established under section 
        1856. Such standards shall include a prohibition against an 
        organization (or agent of such an organization) completing any 
        portion of any election form under section 1805 on behalf of 
        any individual.
                   ``provider-sponsored organizations
  ``Sec. 1854. (a) Provider-Sponsored Organization Defined.--
          ``(1) In general.--In this part, the term `provider-sponsored 
        organization' means a public or private entity that (in 
        accordance with standards established under subsection (b)) is 
        a provider, or group of affiliated providers, that provides a 
        substantial proportion (as defined by the Secretary under such 
        standards) of the health care items and services under the 
        contract under this part directly through the provider or 
        affiliated group of providers.
          ``(2) Substantial proportion.--In defining what is a 
        `substantial proportion' for purposes of paragraph (1), the 
        Secretary--
                  ``(A) shall take into account the need for such an 
                organization to assume responsibility for a substantial 
                proportion of services in order to assure financial 
                stability and the practical difficulties in such an 
                organization integrating a very wide range of service 
                providers; and
                  ``(B) may vary such proportion based upon relevant 
                differences among organizations, such as their location 
                in an urban or rural area.
          ``(3) Affiliation.--For purposes of this subsection, a 
        provider is `affiliated' with another provider if, through 
        contract, ownership, or otherwise--
                  ``(A) one provider, directly or indirectly, controls, 
                is controlled by, or is under common control with the 
                other,
                  ``(B) each provider is a participant in a lawful 
                combination under which each provider shares, directly 
                or indirectly, substantial financial risk in connection 
                with their operations,
                  ``(C) both providers are part of a controlled group 
                of corporations under section 1563 of the Internal 
                Revenue Code of 1986, or
                  ``(D) both providers are part of an affiliated 
                service group under section 414 of such Code.
          ``(4) Control.--For purposes of paragraph (3), control is 
        presumed to exist if one party, directly or indirectly, owns, 
        controls, or holds the power to vote, or proxies for, not less 
        than 51 percent of the voting rights or governance rights of 
        another.
  ``(b) Process for Establishing Standards for Provider-Sponsored 
Organizations.--For process of establishing of standards for provider-
sponsored organizations, see section 1856(c).
  ``(c) Process for State Certification of Provider-Sponsored 
Organizations.--For process of State certification of provider-
sponsored organizations, see section 1857(c).
  ``(d) Preemption of State Insurance Licensing Requirements.--
          ``(1) In general.--This section supersedes any State law 
        which--
                  ``(A) requires that a provider-sponsored organization 
                meet requirements for insurers of health services or 
                health maintenance organizations doing business in the 
                State with respect to initial capitalization and 
                establishment of financial reserves against insolvency, 
                or
                  ``(B) imposes requirements that would have the effect 
                of prohibiting the organization from complying with the 
                applicable requirements of this part,
        insofar as such the law applies to individuals enrolled with 
        the organization under this part.
          ``(2) Exception.--Paragraph (1) shall not apply with respect 
        to any State law to the extent that such law provides standards 
        or requirements, or provides for enforcement thereof, so as to 
        meet the requirements of section 1857(c)(2) with respect to 
        approval by the Secretary of State certification requirements 
        thereunder.
          ``(3) Construction.--Nothing in this subsection shall be 
        construed as affecting the operation of section 514 of the 
        Employee Retirement Income Security Act of 1974.
                ``payments to medicareplus organizations
  ``Sec. 1855. (a) Payments.--
          ``(1) In general.--Under a contract under section 1858 the 
        Secretary shall pay to each MedicarePlus organization, with 
        respect to coverage of an individual under this part in a 
        payment area for a month, an amount equal to the monthly 
        adjusted MedicarePlus capitation rate (as provided under 
        subsection (b)) with respect to that individual for that area.
          ``(2) Annual announcement.--The Secretary shall annually 
        determine, and shall announce (in a manner intended to provide 
        notice to interested parties) not later than September 7 before 
        the calendar year concerned--
                  ``(A) the annual MedicarePlus capitation rate for 
                each payment area for the year, and
                  ``(B) the factors to be used in adjusting such rates 
                under subsection (b) for payments for months in that 
                year.
          ``(3) Advance notice of methodological changes.--At least 45 
        days before making the announcement under paragraph (2) for a 
        year, the Secretary shall provide for notice to MedicarePlus 
        organizations of proposed changes to be made in the methodology 
        or benefit coverage assumptions from the methodology and 
        assumptions used in the previous announcement and shall provide 
        such organizations an opportunity to comment on such proposed 
        changes.
          ``(4) Explanation of assumptions.--In each announcement made 
        under paragraph (2) for a year, the Secretary shall include an 
        explanation of the assumptions (including any benefit coverage 
        assumptions) and changes in methodology used in the 
        announcement in sufficient detail so that MedicarePlus 
        organizations can compute monthly adjusted MedicarePlus 
        capitation rates for classes of individuals located in each 
        payment area which is in whole or in part within the service 
        area of such an organization.
  ``(b) Monthly Adjusted MedicarePlus Capitation Rate.--
          ``(1) In general.--For purposes of this section, the `monthly 
        adjusted MedicarePlus capitation rate' under this subsection, 
        for a month in a year for an individual in a payment area 
        (specified under paragraph (3)) and in a class (established 
        under paragraph (4)), is \1/12\ of the annual MedicarePlus 
        capitation rate specified in paragraph (2) for that area for 
        the year, adjusted to reflect the actuarial value of benefits 
        under this title with respect to individuals in such class 
        compared to the national average for individuals in all 
        classes.
          ``(2) Annual medicareplus capitation rates.--For purposes of 
        this section, the annual MedicarePlus capitation rate for a 
        payment area for a year is equal to the annual MedicarePlus 
        capitation rate for the area for the previous year (or, in the 
        case of 1996, the average annual per capita rate of payment 
        described in section 1876(a)(1)(C) for the area for 1995) 
        increased by the per capita growth rate for that area and year 
        (as determined under subsection (c)).
          ``(3) Payment area defined.--In this section, the term 
        `payment area' means a county (or equivalent area specified by 
        the Secretary), except that in the case of the population group 
        described in paragraph (5)(C), the payment area shall be each 
        State.
          ``(4) Classes.--
                  ``(A) In general.--For purposes of this section, the 
                Secretary shall define appropriate classes of 
                enrollees, consistent with paragraph (5), based on age, 
                gender, welfare status, institutionalization, and such 
                other factors as the Secretary determines to be 
                appropriate, so as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for such 
                classes, if such changes will improve the determination 
                of actuarial equivalence.
                  ``(B) Research.--The Secretary shall conduct such 
                research as may be necessary to provide for greater 
                accuracy in the adjustment of capitation rates under 
                this subsection. Such research may include research 
                into the addition or modification of classes under 
                subparagraph (A). The Secretary shall submit to 
                Congress a report on such research by not later than 
                January 1, 1997.
          ``(5) Division of medicare population.--In carrying out 
        paragraph (4) and this section, the Secretary shall recognize 
        the following separate population groups:
                  ``(A) Aged.--Individuals 65 years of age or older who 
                are not described in subparagraph (C).
                  ``(B) Disabled.--Disabled individuals who are under 
                65 years of age and not described in subparagraph (C).
                  ``(C) Individuals with end stage renal disease.--
                Individuals who are determined to have end stage renal 
                disease.
  ``(c) Per Capita Growth Rates.--
          ``(1) For 1996.--
                  ``(A) In general.--For purposes of this section and 
                subject to subparagraph (B), the per capita growth 
                rates for 1996, for a payment area assigned to a 
                service utilization cohort under subsection (d), shall 
                be the following:
                          ``(i) Lowest service utilization cohort.--For 
                        areas assigned to the lowest service 
                        utilization cohort, 9.7 percent.
                          ``(ii) Lower service utilization cohort.--For 
                        areas assigned to the lower service utilization 
                        cohort, 8.0 percent.
                          ``(iii) Median service utilization cohort.--
                        For areas assigned to the median service 
                        utilization cohort, 5.3 percent.
                          ``(iv) Higher service utilization cohort.--
                        For areas assigned to the higher service 
                        utilization cohort, 4.7 percent.
                          ``(v) Highest service utilization cohort.--
                        For areas assigned to the highest service 
                        utilization cohort, 4.0 percent.
                  ``(B) Budget neutral adjustment.--The Secretary shall 
                adjust the per capita growth rates specified in 
                subparagraph (A) for all the areas by such uniform 
                factor as may be necessary to assure that the total 
                capitation payments under this section during 1996 are 
                the same as the amount such payments would have been if 
                the per capita growth rate for all such areas for 1996 
                were equal to the national average per capita growth 
                rate, specified in paragraph (3) for 1996.
          ``(2) For subsequent years.--
                  ``(A) In general.--For purposes of this section and 
                subject to subparagraph (B), the Secretary shall 
                compute a per capita growth rate for each year after 
                1996, for each payment area as assigned to a service 
                utilization cohort under subsection (d), consistent 
                with the following rules:
                          ``(i) Median service utilization cohort set 
                        at national average per capita growth rate.--
                        The per capita growth rate for areas assigned 
                        to the median service utilization cohort for 
                        the year shall be the national average per 
                        capita growth rate for the year (as specified 
                        under paragraph (3)).
                          ``(ii) Highest service utilization cohort set 
                        at 75 percent of national average per capita 
                        growth rate.--The per capita growth rate for 
                        areas assigned to the highest service 
                        utilization cohort for the year shall be 75 
                        percent of the national average per capita 
                        growth rate for the year.
                          ``(iii) Lowest service utilization cohort set 
                        at 187.5 percent of national average per capita 
                        growth rate.--The per capita growth rate for 
                        areas assigned to the lowest service 
                        utilization cohort for the year shall be 187.5 
                        percent of the national average per capita 
                        growth rate for the year.
                          ``(iv) Lower service utilization cohort set 
                        at 150 percent of national average per capita 
                        growth rate.--
                                  ``(I) In general.--Subject to 
                                subclause (II), the per capita growth 
                                rate for areas assigned to the lower 
                                service utilization cohort for the year 
                                shall be 150 percent of the national 
                                average per capita growth rate for the 
                                year.
                                  ``(II) Adjustment.--If the Secretary 
                                has established under clause (v) the 
                                per capita growth rate for areas 
                                assigned to the higher service 
                                utilization cohort for the year at 75 
                                percent of the national average per 
                                capita growth rate, the Secretary may 
                                provide for a reduced per capita growth 
                                rate under subclause (I) to the extent 
                                necessary to comply with subparagraph 
                                (B).
                          ``(v) Higher service utilization cohort.--The 
                        per capita growth rate for areas assigned to 
                        the higher service utilization cohort for the 
                        year shall be such percent (not less than 75 
                        percent) of the national average per capita 
                        growth rate, as the Secretary may determine 
                        consistent with subparagraph (B).
                  ``(B) Average per capita growth rate at national 
                average to assure budget neutrality.--The Secretary 
                shall compute per capita growth rates for a year under 
                subparagraph (A) in a manner so that the weighted 
                average per capita growth rate for all areas for the 
                year (weighted to reflect the number of medicare 
                beneficiaries in each area) is equal to the national 
                average per capita growth rate under paragraph (3) for 
                the year.
          ``(3) National average per capita growth rates.--In this 
        subsection, the `national average per capita growth rate' for--
                  ``(A) 1996 is 5.3 percent,
                  ``(B) 1997 is 3.8 percent,
                  ``(C) 1998 is 4.6 percent,
                  ``(D) 1999 is 4.3 percent,
                  ``(E) 2000 is 3.8 percent,
                  ``(F) 2001 is 5.5 percent,
                  ``(G) 2002 is 5.6 percent, and
                  ``(H) each subsequent year is 5.0 percent.
  ``(d) Assignment of Payment Areas to Service Utilization Cohorts.--
          ``(1) In general.--For purposes of determining per capita 
        growth rates under subsection (c) for areas for a year, the 
        Secretary shall assign each payment area to a service 
        utilization cohort (based on the service utilization index 
        value for that area determined under paragraph (2)) as follows:
                  ``(A) Lowest service utilization cohort.--Areas with 
                a service utilization index value of less than .80 
                shall be assigned to the lowest service utilization 
                cohort.
                  ``(B) Lower service utilization cohort.--Areas with a 
                service utilization index value of at least .80 but 
                less than .90 shall be assigned to the lower service 
                utilization cohort.
                  ``(C) Median service utilization cohort.--Areas with 
                a service utilization index value of at least .90 but 
                less than 1.10 shall be assigned to the median service 
                utilization cohort.
                  ``(D) Higher service utilization cohort.--Areas with 
                a service utilization index value of at least 1.10 but 
                less than 1.20 shall be assigned to the higher service 
                utilization cohort.
                  ``(E) Highest service utilization cohort.--Areas with 
                a service utilization index value of at least 1.20 
                shall be assigned to the highest service utilization 
                cohort.
          ``(2) Determination of service utilization index values.--In 
        order to determine the per capita growth rate for a payment 
        area for each year (beginning with 1996), the Secretary shall 
        determine for such area and year a service utilization index 
        value, which is equal to--
                  ``(A) the annual MedicarePlus capitation rate under 
                this section for the area for the year in which the 
                determination is made (or, in the case of 1996, the 
                average annual per capita rate of payment (described in 
                section 1876(a)(1)(C)) for the area for 1995); divided 
                by
                  ``(B) the input-price-adjusted annual national 
                MedicarePlus capitation rate (as determined under 
                paragraph (3)) for that area for the year in which the 
                determination is made.
          ``(3) Determination of input-price-adjusted rates.--
                  ``(A) In general.--For purposes of paragraph (2), the 
                `input-price-adjusted annual national MedicarePlus 
                capitation rate' for a payment area for a year is equal 
                to the sum, for all the types of medicare services (as 
                classified by the Secretary), of the product (for each 
                such type) of--
                          ``(i) the national standardized MedicarePlus 
                        capitation rate (determined under subparagraph 
                        (B)) for the year,
                          ``(ii) the proportion of such rate for the 
                        year which is attributable to such type of 
                        services, and
                          ``(iii) an index that reflects (for that year 
                        and that type of services) the relative input 
                        price of such services in the area compared to 
                        the national average input price of such 
                        services.
                In applying clause (iii), the Secretary shall, subject 
                to subparagraph (C), apply those indices under this 
                title that are used in applying (or updating) national 
                payment rates for specific areas and localities.
                  ``(B) National standardized medicareplus capitation 
                rate.--In this paragraph, the `national standardized 
                MedicarePlus capitation rate' for a year is equal to--
                          ``(i) the sum (for all payment areas) of the 
                        product of (I) the annual MedicarePlus 
                        capitation rate for that year for the area 
                        under subsection (b)(2), and (II) the average 
                        number of medicare beneficiaries residing in 
                        that area in the year; divided by
                          ``(ii) the total average number of medicare 
                        beneficiaries residing in all the payment areas 
                        for that year.
                  ``(C) Special rules for 1996.--In applying this 
                paragraph for 1996--
                          ``(i) medicare services shall be divided into 
                        2 types of services: part A services and part B 
                        services;
                          ``(ii) the proportions described in 
                        subparagraph (A)(ii) for such types of services 
                        shall be--
                                  ``(I) for part A services, the ratio 
                                (expressed as a percentage) of the 
                                average annual per capita rate of 
                                payment for the area for part A for 
                                1995 to the total average annual per 
                                capita rate of payment for the area for 
                                parts A and B for 1995, and
                                  ``(II) for part B services, 100 
                                percent minus the ratio described in 
                                subclause (I);
                          ``(iii) for the part A services, 70 percent 
                        of payments attributable to such services shall 
                        be adjusted by the index used under section 
                        1886(d)(3)(E) to adjust payment rates for 
                        relative hospital wage levels for hospitals 
                        located in the payment area involved;
                          ``(iv) for part B services--
                                  ``(I) 66 percent of payments 
                                attributable to such services shall be 
                                adjusted by the index of the geographic 
                                area factors under section 1848(e) used 
                                to adjust payment rates for physicians' 
                                services furnished in the payment area, 
                                and
                                  ``(II) of the remaining 34 percent of 
                                the amount of such payments, 70 percent 
                                shall be adjusted by the index 
                                described in clause (iii);
                          ``(v) the index values shall be computed 
                        based only on the beneficiary population 
                        described in subsection (b)(5)(A).
                The Secretary may continue to apply the rules described 
                in this subparagraph (or similar rules) for 1997.
  ``(e) Payment Process.--
          ``(1) In general.--Subject to subsection (f), the Secretary 
        shall make monthly payments under this section in advance and 
        in accordance with the rate determined under subsection (a) to 
        the plan for each individual enrolled with a MedicarePlus 
        organization under this part.
          ``(2) Adjustment to reflect number of enrollees.--
                  ``(A) In general.--The amount of payment under this 
                subsection may be retroactively adjusted to take into 
                account any difference between the actual number of 
                individuals enrolled with an organization under this 
                part and the number of such individuals estimated to be 
                so enrolled in determining the amount of the advance 
                payment.
                  ``(B) Special rule for certain enrollees.--
                          ``(i) In general.--Subject to clause (ii), 
                        the Secretary may make retroactive adjustments 
                        under subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the individual 
                        enrolls with a MedicarePlus organization under 
                        a product operated, sponsored, or contributed 
                        to by the individual's employer or former 
                        employer (or the employer or former employer of 
                        the individual's spouse) and ending on the date 
                        on which the individual is enrolled in the 
                        organization under this part, except that for 
                        purposes of making such retroactive adjustments 
                        under this subparagraph, such period may not 
                        exceed 90 days.
                          ``(ii) Exception.--No adjustment may be made 
                        under clause (i) with respect to any individual 
                        who does not certify that the organization 
                        provided the individual with the disclosure 
                        statement described in section 1853(a) at the 
                        time the individual enrolled with the 
                        organization.
  ``(f) Special Rules for Individuals Electing High Deductible/Medisave 
Product.--
          ``(1) In general.--In the case of an individual who has 
        elected a high deductible/medisave product, notwithstanding the 
        preceding provisions of this section--
                  ``(A) the amount of the payment to the MedicarePlus 
                organization offering the high deductible/medisave 
                product shall not exceed the premium for the product, 
                and
                  ``(B) subject to paragraph (2), the difference 
                between the amount of payment that would otherwise be 
                made and the amount of payment to such organization 
                shall be made directly into a MedicarePlus MSA 
                established (and, if applicable, designated) by the 
                individual under paragraph (2).
          ``(2) Establishment and designation of medicareplus medical 
        savings account as requirement for payment of contribution.--In 
        the case of an individual who has elected coverage under a high 
        deductible/medisave product, no payment shall be made under 
        paragraph (1)(B) on behalf of an individual for a month unless 
        the individual--
                  ``(A) has established before the beginning of the 
                month (or by such other deadline as the Secretary may 
                specify) a MedicarePlus MSA (as defined in section 
                137(b) of the Internal Revenue Code of 1986), and
                  ``(B) if the individual has established more than one 
                MedicarePlus MSA, has designated one of such accounts 
                as the individual's MedicarePlus MSA for purposes of 
                this part.
        Under rules under this section, such an individual may change 
        the designation of such account under subparagraph (B) for 
        purposes of this part.
          ``(3) Lump sum deposit of medical savings account 
        contribution.--In the case of an individual electing a high 
        deductible/medisave product effective beginning with a month in 
        a year, the amount of the contribution to the MedicarePlus MSA 
        on behalf of the individual for that month and all successive 
        months in the year shall be deposited during that first month. 
        In the case of a termination of such an election as of a month 
        before the end of a year, the Secretary shall provide for a 
        procedure for the recovery of deposits attributable to the 
        remaining months in the year.
  ``(g) Payments From Trust Fund.--The payment to a MedicarePlus 
organization under this section for individuals enrolled under this 
part with the organization, and payments to a MedicarePlus MSA under 
subsection (f)(1)(B), shall be made from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund 
in such proportion as the Secretary determines reflects the relative 
weight that benefits under part A and under part B represents of the 
actuarial value of the total benefits under this title.
  ``(h) Special Rule for Certain Inpatient Hospital Stays.--In the case 
of an individual who is receiving inpatient hospital services from a 
subsection (d) hospital (as defined in section 1886(d)(1)(B)) as of the 
effective date of the individual's--
          ``(1) election under this part of a MedicarePlus product 
        offered by a MedicarePlus organization--
                  ``(A) payment for such services until the date of the 
                individual's discharge shall be made under this title 
                through the MedicarePlus product or Non-MedicarePlus 
                option (as the case may be) elected before the election 
                with such organization,
                  ``(B) the elected organization shall not be 
                financially responsible for payment for such services 
                until the date after the date of the individual's 
                discharge, and
                  ``(C) the organization shall nonetheless be paid the 
                full amount otherwise payable to the organization under 
                this part; or
          ``(2) termination of election with respect to a MedicarePlus 
        organization under this part--
                  ``(A) the organization shall be financially 
                responsible for payment for such services after such 
                date and until the date of the individual's discharge,
                  ``(B) payment for such services during the stay shall 
                not be made under section 1886(d) or by any succeeding 
                MedicarePlus organization, and
                  ``(C) the terminated organization shall not receive 
                any payment with respect to the individual under this 
                part during the period the individual is not enrolled.
   ``establishment of standards for medicare-plus organizations and 
                                products
  ``Sec. 1856. (a) Standards Applicable to State-Regulated 
Organizations and Products.--
          ``(1) Recommendations of naic.--The Secretary shall request 
        the National Association of Insurance Commissioners to develop 
        and submit to the Secretary, not later than 12 months after the 
        date of the enactment of the Medicare Preservation Act of 1995, 
        proposed standards consistent with the requirements of this 
        part for MedicarePlus organizations (other than Taft-Hartley 
        sponsors and provider-sponsored organizations) and MedicarePlus 
        products offered by such organizations, except that such 
        proposed standards may relate to MedicarePlus organizations 
        that are qualified associations only with respect to 
        MedicarePlus products offered by them and only if such products 
        are issued by organizations to which section 1851(b)(1) 
        applies.
          ``(2) Review.--If the Association submits such standards on a 
        timely basis, the Secretary shall review such standards to 
        determine if the standards meet the requirements of the part. 
        The Secretary shall complete the review of the standards not 
        later than 90 days after the date of their submission. The 
        Secretary shall promulgate such proposed standards to apply to 
        organizations and products described in paragraph (1) except to 
        the extent that the Secretary modifies such proposed standards 
        because they do not meet such requirements.
          ``(3) Failure to submit.--If the Association does not submit 
        such standards on a timely basis, the Secretary shall 
        promulgate such standards by not later than the date the 
        Secretary would otherwise have been required to promulgate 
        standards under paragraph (2).
          ``(4) Use of interim rules.--For the period in which this 
        part is in effect and standards are being developed and 
        established under the preceding provisions of this subsection, 
        the Secretary shall provide by not later than June 1, 1996, for 
        the application of such interim standards (without regard to 
        any requirements for notice and public comment) as may be 
        appropriate to provide for the expedited implementation of this 
        part. Such interim standards shall not apply after the date 
        standards are established under the preceding provisions of 
        this subsection.
  ``(b) Taft-Hartley Sponsors, Qualified Associations, and Products.--
          ``(1) In general.--The Secretary shall develop and promulgate 
        by regulation standards consistent with the requirements of 
        this part for Taft-Hartley sponsors, for qualified 
        associations, and for MedicarePlus products offered by such 
        organizations (other than MedicarePlus products offered by 
        qualified associations that are issued by organizations to 
        which section 1851(b)(1) applies).
          ``(2) Consultation with labor.--The Secretary shall consult 
        with the Secretary of Labor with respect to such standards for 
        such sponsors and products.
          ``(3) Timing.--Standards under this subsection shall be 
        promulgated at or about the time standards are promulgated 
        under subsection (a).
  ``(c) Establishment of Standards for Provider-Sponsored 
Organizations.--
          ``(1) In general.--The Secretary shall establish, on an 
        expedited basis and using a negotiated rulemaking process under 
        subchapter 3 of chapter 5 of title 5, United States Code, 
        standards that entities must meet to qualify as provider-
        sponsored organizations under this part.
          ``(2) Publication of notice.--In carrying out the rulemaking 
        process under this subsection, the Secretary, after 
        consultation with the National Association of Insurance 
        Commissioners, the American Academy of Actuaries, organizations 
        representative of medicare beneficiaries, and other interested 
        parties, shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later than 45 
        days after the date of the enactment of Medicare Preservation 
        Act of 1995.
          ``(3) Target date for publication of rule.--As part of the 
        notice under paragraph (2), and for purposes of this 
        subsection, the `target date for publication' (referred to in 
        section 564(a)(5) of such title) shall be September 1, 1996.
          ``(4) Abbreviated period for submission of comments.--In 
        applying section 564(c) of such title under this subsection, 
        `15 days' shall be substituted for `30 days'.
          ``(5) Appointment of negotiated rulemaking committee and 
        facilitator.--The Secretary shall provide for--
                  ``(A) the appointment of a negotiated rulemaking 
                committee under section 565(a) of such title by not 
                later than 30 days after the end of the comment period 
                provided for under section 564(c) of such title (as 
                shortened under paragraph (4)), and
                  ``(B) the nomination of a facilitator under section 
                566(c) of such title by not later than 10 days after 
                the date of appointment of the committee.
          ``(6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) shall report 
        to the Secretary, by not later than June 1, 1996, regarding the 
        committee's progress on achieving a concensus with regard to 
        the rulemaking proceeding and whether such consensus is likely 
        to occur before one month before the target date for 
        publication of the rule. If the committee reports that the 
        committee has failed to make significant progress towards such 
        consensus or is unlikely to reach such consensus by the target 
        date, the Secretary may terminate such process and provide for 
        the publication of a rule under this subsection through such 
        other methods as the Secretary may provide.
          ``(7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking committee shall 
        submit a report containing a proposed rule by not later than 
        one month before the target publication date.
          ``(8) Interim, final effect.--The Secretary shall publish a 
        rule under this subsection in the Federal Register by not later 
        than the target publication date. Such rule shall be effective 
        and final immediately on an interim basis, but is subject to 
        change and revision after public notice and opportunity for a 
        period (of not less than 60 days) for public comment. In 
        connection with such rule, the Secretary shall specify the 
        process for the timely review and approval of applications of 
        entities to be certified as provider-sponsored organizations 
        pursuant to such rules and consistent with this subsection.
          ``(9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such comments and 
        republication of such rule by not later than 1 year after the 
        target publication date.
          ``(10) Process for approval of applications for 
        certification.--
                  ``(A) In general.--The Secretary shall establish a 
                process for the receipt and approval of applications of 
                entities for certification as provider-sponsored 
                organizations under this part. Under such process, the 
                Secretary shall act upon a complete application 
                submitted within 60 days after the date it is received.
                  ``(B) Circulation of proposed application form.--By 
                March 1, 1996, the Secretary, after consultation with 
                the negotiated rulemaking committee, shall circulate a 
                proposed application form that could be used by 
                entities considering becoming certified as a provider-
                sponsored organization under this part.
  ``(d) Coordination Among Final Standards.--In establishing standards 
(other than on an interim basis) under the previous provisions of this 
section, the Secretary shall seek to provide for consistency (as 
appropriate) across the different types of MedicarePlus organizations, 
in order to promote equitable treatment of different types of 
organizations and consistent protection for individuals who elect 
products offered by the different types of MedicarePlus organizations.
  ``(e) Use of Current Standards for Interim Standards.--To the extent 
practicable and consistent with the requirements of this part, 
standards established on an interim basis to carry out requirements of 
this part may be based on currently applicable standards, such as the 
rules established under section 1876 (as in effect as of the date of 
the enactment of this section) to carry out analogous provisions of 
such section or standards established or developed for application in 
the private health insurance market.
  ``(f) Application of New Standards to Entities with a Contract.--In 
the case of a MedicarePlus organization with a contract in effect under 
this part at the time standards applicable to the organization under 
this section are changed, the organization may elect not to have such 
changes apply to the organization until the end of the current contract 
year (or, if there is less than 6 months remaining in the contract 
year, until 1 year after the end of the current contract year).
  ``(g) Relation to State Laws.--The standards established under this 
section shall supersede any State law or regulation with respect to 
MedicarePlus products which are offered by MedicarePlus organizations 
and are issued by organizations to which section 1851(b)(1) applies, to 
the extent such law or regulation is inconsistent with such standards.
                     ``medicare-plus certification
  ``Sec. 1857. (a) State Certification Process for State-Regulated 
Organizations.--
          ``(1) Approval of state process.--The Secretary shall approve 
        a MedicarePlus certification and enforcement program 
        established by a State for applying the standards established 
        under section 1856 to MedicarePlus organizations (other than 
        Taft-Hartley sponsors and provider-sponsored organizations) and 
        MedicarePlus products offered by such organizations if the 
        Secretary determines that the program effectively provides for 
        the application and enforcement of such standards in the State 
        with respect to such organizations and products. Such program 
        shall provide for certification of compliance of MedicarePlus 
        organizations and products with the applicable requirements of 
        this part not less often than once every 3 years.
          ``(2) Effect of certification under state process.--A 
        MedicarePlus organization and MedicarePlus product offered by 
        such an organization that is certified under such program is 
        considered to have been certified under this subsection with 
        respect to the offering of the product to individuals residing 
        in the State.
          ``(3) User fees.--The State may impose user fees on 
        organizations seeking certification under this subsection in 
        such amounts as the State deems sufficient to finance the costs 
        of such certification. Nothing in this paragraph shall be 
        construed as restricting a State's authority to impose premium 
        taxes, other taxes, or other levies.
          ``(4) Review.--The Secretary periodically shall review State 
        programs approved under paragraph (1) to determine if they 
        continue to provide for certification and enforcement described 
        in such paragraph. If the Secretary finds that a State program 
        no longer so provides, before making a final determination, the 
        Secretary shall provide the State an opportunity to adopt such 
        a plan of correction as would permit the State program to meet 
        the requirements of paragraph (1). If the Secretary makes a 
        final determination that the State program, after such an 
        opportunity, fails to meet such requirements, the provisions of 
        subsection (b) shall apply to MedicarePlus organizations and 
        products in the State.
          ``(5) Effect of no state program.--Beginning on the date 
        standards are established under section 1856, in the case of 
        organizations and products in States in which a certification 
        program has not been approved and in operation under paragraph 
        (1), the Secretary shall establish a process for the 
        certification of MedicarePlus organizations (other than Taft-
        Hartley sponsors and provider-sponsored organizations) and 
        products of such organizations as meeting such standards.
          ``(6) Publication of list of approved state programs.--The 
        Secretary shall publish (and periodically update) a list of 
        those State programs which are approved for purposes of this 
        subsection.
  ``(b) Federal Certification Process for Taft-Hartley Sponsors and 
Provider-Sponsored Organizations.--
          ``(1) Establishment.--The Secretary shall establish a process 
        for the certification of Taft-Hartley sponsors and provider-
        sponsored organizations and MedicarePlus products offered by 
        such sponsors and organizations as meeting the applicable 
        standards established under section 1856.
          ``(2) Involvement of secretary of labor.--Such process shall 
        be established and operated in cooperation with the Secretary 
        of Labor with respect to Taft-Hartley sponsors.
          ``(3) Use of state licensing and private accreditation 
        processes.--
                  ``(A) In general.--The process under this subsection 
                shall, to the maximum extent practicable, provide that 
                MedicarePlus organizations and products that are 
                licensed or certified through a qualified private 
                accreditation process that the Secretary finds applies 
                standards that are no less stringent than the 
                requirements of this part are deemed to meet the 
                corresponding requirements of this part for such an 
                organization or product.
                  ``(B) Periodic accreditation.--The use of an 
                accreditation under subparagraph (A) shall be valid 
                only for such period as the Secretary specifies.
          ``(4) User fees.--The Secretary may impose user fees on 
        entities seeking certification under this subsection in such 
        amounts as the Secretary deems sufficient to finance the costs 
        of such certification.
  ``(c) Certification of Provider-Sponsored Organizations by States.--
          ``(1) In general.--The Secretary shall establish a process 
        under which a State may propose to provide for certification of 
        entities as meeting the requirements of this part to be 
        provider-sponsored organizations.
          ``(2) Conditions for approval.--The Secretary may not approve 
        a State program for certification under paragraph (1) unless 
        the Secretary determines that the certification program applies 
        standards and requirements that are identical to the standards 
        and requirements of this part and the applicable provisions for 
        enforcement of such standards and requirements do not result in 
        a lower level or quality of enforcement than that which is 
        otherwise applicable under this title.
  ``(d) Notice to Enrollees in Case of Decertification.--If a 
MedicarePlus organization or product is decertified under this section, 
the organization shall notify each enrollee with the organization and 
product under this part of such decertification.
  ``(e) Qualified Associations.--In the case of MedicarePlus products 
offered by a MedicarePlus organization that is a qualified association 
(as defined in section 1854(c)(4)(C)) and issued by an organization to 
which section 1851(b)(1) applies or by a provider-sponsored 
organization (as defined in section 1854(a)), nothing in this section 
shall be construed as limiting the authority of States to regulate such 
products.
              ``contracts with medicareplus organizations
  ``Sec. 1858. (a) In General.--The Secretary shall not permit the 
election under section 1805 of a MedicarePlus product offered by a 
MedicarePlus organization under this part, and no payment shall be made 
under section 1856 to an organization, unless the Secretary has entered 
into a contract under this section with an organization with respect to 
the offering of such product. Such a contract with an organization may 
cover more than one MedicarePlus product. Such contract shall provide 
that the organization agrees to comply with the applicable requirements 
and standards of this part and the terms and conditions of payment as 
provided for in this part.
  ``(b) Minimum Enrollment Requirements.--
          ``(1) In general.--Subject to paragraphs (1) and (2), the 
        Secretary may not enter into a contract under this section with 
        a MedicarePlus organization (other than a Taft-Hartley sponsor) 
        unless the organization has at least 5,000 individuals (or 
        1,500 individuals in the case of an organization that is a 
        provider-sponsored organization) who are receiving health 
        benefits through the organization, except that the standards 
        under section 1856 may permit the organization to have a lesser 
        number of beneficiaries (but not less than 500 in the case of 
        an organization that is a provider-sponsored organization) if 
        the organization primarily serves individuals residing outside 
        of urbanized areas.
          ``(2) Exception for high deductible/medisave product.--
        Paragraph (1) shall not apply with respect to a contract that 
        relates only to a high deductible/medisave product.
          ``(3) Allowing transition.--The Secretary may waive the 
        requirement of paragraph (1) during the first 3 contract years 
        with respect to an organization.
  ``(c) Contract Period and Effectiveness.--
          ``(1) Period.--Each contract under this section shall be for 
        a term of at least one year, as determined by the Secretary, 
        and may be made automatically renewable from term to term in 
        the absence of notice by either party of intention to terminate 
        at the end of the current term.
          ``(2) Termination authority.--In accordance with procedures 
        established under subsection (h), the Secretary may at any time 
        terminate any such contract or may impose the intermediate 
        sanctions described in an applicable paragraph of subsection 
        (g) on the MedicarePlus organization if the Secretary 
        determines that the organization--
          ``(A) has failed substantially to carry out the contract;
          ``(B) is carrying out the contract in a manner inconsistent 
        with the efficient and effective administration of this part;
          ``(C) is operating in a manner that is not in the best 
        interests of the individuals covered under the contract; or
          ``(D) no longer substantially meets the applicable conditions 
        of this part.
          ``(3) Effective date of contracts.--The effective date of any 
        contract executed pursuant to this section shall be specified 
        in the contract, except that in no case shall a contract under 
        this section which provides for coverage under a high 
        deductible/medisave account be effective before January 1997 
        with respect to such coverage.
          ``(4) Previous terminations.--The Secretary may not enter 
        into a contract with a MedicarePlus organization if a previous 
        contract with that organization under this section was 
        terminated at the request of the organization within the 
        preceding five-year period, except in circumstances which 
        warrant special consideration, as determined by the Secretary.
          ``(5) No contracting authority.--The authority vested in the 
        Secretary by this part may be performed without regard to such 
        provisions of law or regulations relating to the making, 
        performance, amendment, or modification of contracts of the 
        United States as the Secretary may determine to be inconsistent 
        with the furtherance of the purpose of this title.
  ``(d) Protections Against Fraud and Beneficiary Protections.--
          ``(1) Inspection and audit.--Each contract under this section 
        shall provide that the Secretary, or any person or organization 
        designated by the Secretary--
                  ``(A) shall have the right to inspect or otherwise 
                evaluate (i) the quality, appropriateness, and 
                timeliness of services performed under the contract and 
                (ii) the facilities of the organization when there is 
                reasonable evidence of some need for such inspection, 
                and
                  ``(B) shall have the right to audit and inspect any 
                books and records of the MedicarePlus organization that 
                pertain (i) to the ability of the organization to bear 
                the risk of potential financial losses, or (ii) to 
                services performed or determinations of amounts payable 
                under the contract.
          ``(2) Enrollee notice at time of termination.--Each contract 
        under this section shall require the organization to provide 
        (and pay for) written notice in advance of the contract's 
        termination, as well as a description of alternatives for 
        obtaining benefits under this title, to each individual 
        enrolled with the organization under this part.
          ``(3) Disclosure.--
                  ``(A) In general.--Each MedicarePlus organization 
                shall, in accordance with regulations of the Secretary, 
                report to the Secretary financial information which 
                shall include the following:
                          ``(i) Such information as the Secretary may 
                        require demonstrating that the organization has 
                        a fiscally sound operation.
                          ``(ii) A copy of the report, if any, filed 
                        with the Health Care Financing Administration 
                        containing the information required to be 
                        reported under section 1124 by disclosing 
                        entities.
                          ``(iii) A description of transactions, as 
                        specified by the Secretary, between the 
                        organization and a party in interest. Such 
                        transactions shall include--
                                  ``(I) any sale or exchange, or 
                                leasing of any property between the 
                                organization and a party in interest;
                                  ``(II) any furnishing for 
                                consideration of goods, services 
                                (including management services), or 
                                facilities between the organization and 
                                a party in interest, but not including 
                                salaries paid to employees for services 
                                provided in the normal course of their 
                                employment and health services provided 
                                to members by hospitals and other 
                                providers and by staff, medical group 
                                (or groups), individual practice 
                                association (or associations), or any 
                                combination thereof; and
                                  ``(III) any lending of money or other 
                                extension of credit between an 
                                organization and a party in interest.
                The Secretary may require that information reported 
                respecting an organization which controls, is 
                controlled by, or is under common control with, another 
                entity be in the form of a consolidated financial 
                statement for the organization and such entity.
                  ``(B) Party in interest defined.--For the purposes of 
                this paragraph, the term `party in interest' means--
                          ``(i) any director, officer, partner, or 
                        employee responsible for management or 
                        administration of a MedicarePlus organization, 
                        any person who is directly or indirectly the 
                        beneficial owner of more than 5 percent of the 
                        equity of the organization, any person who is 
                        the beneficial owner of a mortgage, deed of 
                        trust, note, or other interest secured by, and 
                        valuing more than 5 percent of the 
                        organization, and, in the case of a 
                        MedicarePlus organization organized as a 
                        nonprofit corporation, an incorporator or 
                        member of such corporation under applicable 
                        State corporation law;
                          ``(ii) any entity in which a person described 
                        in clause (i)--
                                  ``(I) is an officer or director;
                                  ``(II) is a partner (if such entity 
                                is organized as a partnership);
                                  ``(III) has directly or indirectly a 
                                beneficial interest of more than 5 
                                percent of the equity; or
                                  ``(IV) has a mortgage, deed of trust, 
                                note, or other interest valuing more 
                                than 5 percent of the assets of such 
                                entity;
                          ``(iii) any person directly or indirectly 
                        controlling, controlled by, or under common 
                        control with an organization; and
                          ``(iv) any spouse, child, or parent of an 
                        individual described in clause (i).
                  ``(C) Access to information.--Each MedicarePlus 
                organization shall make the information reported 
                pursuant to subparagraph (A) available to its enrollees 
                upon reasonable request.
          ``(4) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other special 
        financial arrangements which are made between the organization 
        and subcontractors, affiliates, and related parties.
  ``(e) Additional Contract Terms.--The contract shall contain such 
other terms and conditions not inconsistent with this part (including 
requiring the organization to provide the Secretary with such 
information) as the Secretary may find necessary and appropriate.
  ``(f) Intermediate Sanctions.--
          ``(1) In general.--If the Secretary determines that a 
        MedicarePlus organization with a contract under this section--
                  ``(A) fails substantially to provide medically 
                necessary items and services that are required (under 
                law or under the contract) to be provided to an 
                individual covered under the contract, if the failure 
                has adversely affected (or has substantial likelihood 
                of adversely affecting) the individual;
                  ``(B) imposes premiums on individuals enrolled under 
                this part in excess of the premiums permitted;
                  ``(C) acts to expel or to refuse to re-enroll an 
                individual in violation of the provisions of this part;
                  ``(D) engages in any practice that would reasonably 
                be expected to have the effect of denying or 
                discouraging enrollment (except as permitted by this 
                part) by eligible individuals with the organization 
                whose medical condition or history indicates a need for 
                substantial future medical services;
                  ``(E) misrepresents or falsifies information that is 
                furnished--
                          ``(i) to the Secretary under this part, or
                          ``(ii) to an individual or to any other 
                        entity under this part;
                  ``(F) fails to comply with the requirements of 
                section 1852(f)(3); or
                  ``(G) employs or contracts with any individual or 
                entity that is excluded from participation under this 
                title under section 1128 or 1128A for the provision of 
                health care, utilization review, medical social work, 
                or administrative services or employs or contracts with 
                any entity for the provision (directly or indirectly) 
                through such an excluded individual or entity of such 
                services;
        the Secretary may provide, in addition to any other remedies 
        authorized by law, for any of the remedies described in 
        paragraph (2).
          ``(2) Remedies.--The remedies described in this paragraph 
        are--
                  ``(A) civil money penalties of not more than $25,000 
                for each determination under paragraph (1) or, with 
                respect to a determination under subparagraph (D) or 
                (E)(i) of such paragraph, of not more than $100,000 for 
                each such determination, plus, with respect to a 
                determination under paragraph (1)(B), double the excess 
                amount charged in violation of such paragraph (and the 
                excess amount charged shall be deducted from the 
                penalty and returned to the individual concerned), and 
                plus, with respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not enrolled as a 
                result of the practice involved,
                  ``(B) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under paragraph (1) and 
                until the Secretary is satisfied that the basis for 
                such determination has been corrected and is not likely 
                to recur, or
                  ``(C) suspension of payment to the organization under 
                this part for individuals enrolled after the date the 
                Secretary notifies the organization of a determination 
                under paragraph (1) and until the Secretary is 
                satisfied that the basis for such determination has 
                been corrected and is not likely to recur.
          ``(3) Other intermediate sanctions.--In the case of a 
        MedicarePlus organization for which the Secretary makes a 
        determination under subsection (c)(2) the basis of which is not 
        described in paragraph (1), the Secretary may apply the 
        following intermediate sanctions:
                  ``(A) civil money penalties of not more than $25,000 
                for each determination under subsection (c)(2) if the 
                deficiency that is the basis of the determination has 
                directly adversely affected (or has the substantial 
                likelihood of adversely affecting) an individual 
                covered under the organization's contract;
                  ``(B) civil money penalties of not more than $10,000 
                for each week beginning after the initiation of 
                procedures by the Secretary under subsection (h) during 
                which the deficiency that is the basis of a 
                determination under subsection (c)(2) exists; and
                  ``(C) suspension of enrollment of individuals under 
                this part after the date the Secretary notifies the 
                organization of a determination under subsection (c)(2) 
                and until the Secretary is satisfied that the 
                deficiency that is the basis for the determination has 
                been corrected and is not likely to recur.
          ``(4) Procedures for imposing sanctions.--The provisions of 
        section 1128A (other than subsections (a) and (b)) shall apply 
        to a civil money penalty under paragraph (1) or (2) in the same 
        manner as they apply to a civil money penalty or proceeding 
        under section 1128A(a).
  ``(g) Procedures for Imposing Sanctions.--The Secretary may terminate 
a contract with a MedicarePlus organization under this section or may 
impose the intermediate sanctions described in subsection (f) on the 
organization in accordance with formal investigation and compliance 
procedures established by the Secretary under which--
          ``(1) the Secretary provides the organization with the 
        opportunity to develop and implement a corrective action plan 
        to correct the deficiencies that were the basis of the 
        Secretary's determination under subsection (c)(2);
          ``(2) the Secretary shall impose more severe sanctions on 
        organizations that have a history of deficiencies or that have 
        not taken steps to correct deficiencies the Secretary has 
        brought to their attention;
          ``(3) there are no unreasonable or unnecessary delays between 
        the finding of a deficiency and the imposition of sanctions; 
        and
          ``(4) the Secretary provides the organization with reasonable 
        notice and opportunity for hearing (including the right to 
        appeal an initial decision) before imposing any sanction or 
        terminating the contract.''.
  (b) Conforming References to Previous Part C.--Any reference in law 
(in effect before the date of the enactment of this Act) to part C of 
title XVIII of the Social Security Act is deemed a reference to part D 
of such title (as in effect after such date).
  (c) Use of Interim, Final Regulations.--In order to carry out the 
amendment made by subsection (a) in a timely manner, the Secretary of 
Health and Human Services may promulgate regulations that take effect 
on an interim basis, after notice and pending opportunity for public 
comment.
  (d) Advance Directives.--Section 1866(f) (42 U.S.C. 1395cc(f)) is 
amended--
          (1) in paragraph (1)--
                  (A) by inserting ``1853(g),'' after ``1833(s),'', and
                  (B) by inserting ``, MedicarePlus organization,'' 
                after ``provider of services'', and
          (2) by adding at the end the following new paragraph:
  ``(4) Nothing in this subsection shall be construed to require the 
provision of information regarding assisted suicide, euthanasia, or 
mercy killing.''.
  (e) Conforming Amendment.--Section 1866(a)(1)(O) (42 U.S.C. 
1395cc(a)(1)(O)) is amended by inserting before the semicolon at the 
end the following: ``and in the case of hospitals to accept as payment 
in full for inpatient hospital services that are emergency services (as 
defined in section 1853(b)(4)) that are covered under this title and 
are furnished to any individual enrolled under part C with a 
MedicarePlus organization which does not have a contract establishing 
payment amounts for services furnished to members of the organization 
the amounts that would be made as a payment in full under this title if 
the individuals were not so enrolled''.

SEC. 15003. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PRODUCTS.

  (a) Treatment of Certain Health Insurance Policies as 
Nonduplicative.--
          (1) In general.--Effective as if included in the enactment of 
        section 4354 of the Omnibus Budget Reconciliation Act of 1990, 
        section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is amended--
                  (A) by amending clause (i) to read as follows:
  ``(i) It is unlawful for a person to sell or issue to an individual 
entitled to benefits under part A or enrolled under part B of this 
title or electing a MedicarePlus product under section 1805--
          ``(I) a health insurance policy (other than a medicare 
        supplemental policy) with knowledge that the policy duplicates 
        health benefits to which the individual is otherwise entitled 
        under this title or title XIX,
          ``(II) in the case of an individual not electing a 
        MedicarePlus product, a medicare supplemental policy with 
        knowledge that the individual is entitled to benefits under 
        another medicare supplemental policy, or
          ``(III) in the case of an individual electing a MedicarePlus 
        product, a medicare supplemental policy with knowledge that the 
        policy duplicates health benefits to which the individual is 
        otherwise entitled under this title or under another medicare 
        supplemental policy.'';
                  (B) in clause (iii), by striking ``clause (i)'' and 
                inserting ``clause (i)(II)''; and
                  (C) by adding at the end the following new clauses:
  ``(iv) For purposes of this subparagraph a health insurance policy 
shall be considered to `duplicate' benefits under this title only when, 
under its terms, the policy provides specific reimbursement for 
identical items and services to the extent paid for under this title, 
and a health insurance policy providing for benefits which are payable 
to or on behalf of an individual without regard to other health benefit 
coverage of such individual is not considered to `duplicate' any health 
benefits under this title.
  ``(v) For purposes of this subparagraph, a health insurance policy 
(or a rider to an insurance contract which is not a health insurance 
policy), including a policy (such as a long-term care insurance 
contract described in section 7702B(b) of the Internal Revenue Code of 
1986, as added by the Contract with America Tax Relief Act of 1995 
(H.R. 1215)) providing benefits for long-term care, nursing home care, 
home health care, or community-based care, that coordinates against or 
excludes items and services available or paid for under this title and 
(for policies sold or issued after January 1, 1996) that discloses such 
coordination or exclusion in the policy's outline of coverage, is not 
considered to `duplicate' health benefits under this title. For 
purposes of this clause, the terms `coordinates' and `coordination' 
mean, with respect to a policy in relation to health benefits under 
this title, that the policy under its terms is secondary to, or 
excludes from payment, items and services to the extent available or 
paid for under this title.
  ``(vi) Notwithstanding any other provision of law, no criminal or 
civil penalty may be imposed at any time under this subparagraph and no 
legal action may be brought or continued at any time in any Federal or 
State court if the penalty or action is based on an act or omission 
that occurred after November 5, 1991, and before the date of the 
enactment of this clause, and relates to the sale, issuance, or renewal 
of any health insurance policy during such period, if such policy meets 
the requirements of clause (iv) or (v).
  ``(vii) A State may not impose, with respect to the sale or issuance 
of a policy (or rider) that meets the requirements of this title 
pursuant to clause (iv) or (v) to an individual entitled to benefits 
under part A or enrolled under part B or enrolled under a MedicarePlus 
product under part C, any requirement based on the premise that such a 
policy or rider duplicates health benefits to which the individual is 
otherwise entitled under this title.''.
          (2) Conforming amendments.--Section 1882(d)(3) (42 U.S.C. 
        1395ss(d)(3)) is amended--
                  (A) in subparagraph (B), by inserting ``(including 
                any MedicarePlus product)'' after ``health insurance 
                policies'';
                  (B) in subparagraph (C)--
                          (i) by striking ``with respect to (i)'' and 
                        inserting ``with respect to'', and
                          (ii) by striking ``, (ii) the sale'' and all 
                        that follows up to the period at the end; and
                  (C) by striking subparagraph (D).
          (3) Medicareplus products not treated as medicare 
        supplementary policies.--Section 1882(g) (42 U.S.C. 1395ss(g)) 
        is amended by inserting ``a MedicarePlus product or'' after 
        ``and does not include''
          (4) Report on duplication and coordination of health 
        insurance policies that are not medicare supplemental 
        policies.--Not later than 3 years after the date of the 
        enactment of this Act, the Secretary of Health and Human 
        Services shall prepare and submit to Congress a report on the 
        advisability and feasibility of restricting the sale to 
        medicare beneficiaries of health insurance policies that 
        duplicate (within the meaning of section 1882(d)(3)(A) of the 
        Social Security Act) other health insurance policies that such 
        a beneficiary may have. In preparing such report, the Secretary 
        shall seek the advice of the National Association of Insurance 
        Commissioners and shall take into account the standards 
        established under section 1807 of the Social Security Act for 
        the electronic coordination of benefits.
  (b) Additional Rules Relating to Individuals Enrolled in MedicarePlus 
Products.--Section 1882 (42 U.S.C. 1395ss) is further amended by adding 
at the end the following new subsection:
  ``(u)(1) Notwithstanding the previous provisions of this section, the 
following provisions shall not apply to a health insurance policy 
(other than a medicare supplemental policy) provided to an individual 
who has elected the MedicarePlus option under section 1805:
          ``(A) Subsections (o)(1), (o)(2), (p)(1)(A)(i), (p)(2), 
        (p)(3), (p)(8), and (p)(9) (insofar as they relate to 
        limitations on benefits or groups of benefits that may be 
        offered).
          ``(B) Subsection (r) (relating to loss-ratios).
  ``(2)(A) It is unlawful for a person to sell or issue a policy 
described in subparagraph (B) to an individual with knowledge that the 
individual has in effect under section 1805 an election of a high 
deductible/medisave product.
  ``(B) A policy described in this subparagraph is a health insurance 
policy that provides for coverage of expenses that are otherwise 
required to be counted toward meeting the annual deductible amount 
provided under the high deductible/medisave product.''.

SEC. 15004. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO PROGRAM.

  (a) Transition from Current Contracts.--
          (1) Limitation on new contracts.--
                  (A) No new risk-sharing contracts after new standards 
                established.--The Secretary of Health and Human 
                Services (in this section referred to as the 
                ``Secretary'') shall not enter into any risk-sharing 
                contract under section 1876 of the Social Security Act 
                with an eligible organization for any contract year 
                beginning on or after the date standards for 
                MedicarePlus organizations and products are first 
                established under section 1856(a) of such Act with 
                respect to MedicarePlus organizations that are insurer 
                or health maintenance organizations unless such a 
                contract had been in effect under section 1876 of such 
                Act for the organization for the previous contract 
                year.
                  (B) No new cost reimbursement contracts.--The 
                Secretary shall not enter into any cost reimbursement 
                contract under section 1876 of the Social Security Act 
                beginning for any contract year beginning on or after 
                the date of the enactment of this Act.
          (2) Termination of current contracts.--
                  (A) Risk-sharing contracts.--Notwithstanding any 
                other provision of law, the Secretary shall not extend 
                or continue any risk-sharing contract with an eligible 
                organization under section 1876 of the Social Security 
                Act (for which a contract was entered into consistent 
                with paragraph (1)(A)) for any contract year beginning 
                on or after 1 year after the date standards described 
                in paragraph (1)(A) are established.
                  (B) Cost reimbursement contracts.--The Secretary 
                shall not extend or continue any reasonable cost 
                reimbursement contract with an eligible organization 
                under section 1876 of the Social Security Act for any 
                contract year beginning on or after January 1, 1998.
  (b) Conforming Payment Rates.--
          (1) Risk-sharing contracts.--Notwithstanding any other 
        provision of law, the Secretary shall provide that payment 
        amounts under risk-sharing contracts under section 1876(a) of 
        the Social Security Act for months in a year (beginning with 
        January 1996) shall be computed--
                  (A) with respect to individuals both entitled to 
                benefits under both parts A and B of title XVIII of 
                such Act, by substituting payment rates under section 
                1855(a) of such Act for the payment rates otherwise 
                established under section 1876(a) of such Act, and
                  (B) with respect to individuals only entitled to 
                benefits under part B of such title, by substituting an 
                appropriate proportion of such rates (reflecting the 
                relative proportion of payments under such title 
                attributable to such part) for the payment rates 
                otherwise established under section 1876(a) of such 
                Act.
        For purposes of carrying out this paragraph for payment for 
        months in 1996, the Secretary shall compute, announce, and 
        apply the payment rates under section 1855(a) of such Act 
        (notwithstanding any deadlines specified in such section) in as 
        timely a manner as possible and may (to the extent necessary) 
        provide for retroactive adjustment in payments made not in 
        accordance with such rates.
          (2) Cost contracts.--Notwithstanding any other provision of 
        law, the Secretary shall provide that payment amounts under 
        cost reimbursement contracts under section 1876(a) of the 
        Social Security Act shall take into account adjustments in 
        payment amounts made in parts A and B of title XVIII of such 
        Act pursuant to the amendments made by this title.
  (c) Elimination of 50:50 Rule.--
          (1) In general.--Section 1876 (42 U.S.C. 1395mm) is amended 
        by striking subsection (f).
          (2) Conforming amendments.--Section 1876 is further amended--
                  (A) in subsection (c)(3)(A)(i), by striking ``would 
                result in failure to meet the requirements of 
                subsection (f) or'', and
                  (B) in subsection (i)(1)(C), by striking ``(e), and 
                (f)'' and inserting ``and (e)''.
          (3) Effective date.--The amendments made by this section 
        shall apply to contract years beginning on or after January 1, 
        1996.

    PART 2--SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS

SEC. 15011. MEDICAREPLUS MSA'S.

  (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by redesignating section 137 as 
section 138 and by inserting after section 136 the following new 
section:

``SEC. 137. MEDICAREPLUS MSA'S.

  ``(a) Exclusion.--Gross income shall not include any payment to the 
MedicarePlus MSA of an individual by the Secretary of Health and Human 
Services under section 1855(f)(1)(B) of the Social Security Act.
  ``(b) MedicarePlus MSA.--For purposes of this section--
          ``(1) Medicareplus msa.--The term `MedicarePlus MSA' means a 
        trust created or organized in the United States exclusively for 
        the purpose of paying the qualified medical expenses of the 
        account holder, but only if the written governing instrument 
        creating the trust meets the following requirements:
                  ``(A) Except in the case of a trustee-to-trustee 
                transfer described in subsection (d)(4), no 
                contribution will be accepted unless it is made by the 
                Secretary of Health and Human Services under section 
                1855(f)(1)(B) of the Social Security Act.
                  ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be 
                consistent with the requirements of this section.
                  ``(C) No part of the trust assets will be invested in 
                life insurance contracts.
                  ``(D) The assets of the trust will not be commingled 
                with other property except in a common trust fund or 
                common investment fund.
                  ``(E) The interest of an individual in the balance in 
                his account is nonforfeitable.
                  ``(F) Trustee-to-trustee transfers described in 
                subsection (d)(4) may be made to and from the trust.
          ``(2) Qualified medical expenses.--
                  ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account holder, 
                amounts paid by such holder--
                          ``(i) for medical care (as defined in section 
                        213(d)) for the account holder, but only to the 
                        extent such amounts are not compensated for by 
                        insurance or otherwise, or
                          ``(ii) for long-term care insurance for the 
                        account holder.
                  ``(B) Health insurance may not be purchased from 
                account.--Subparagraph (A)(i) shall not apply to any 
                payment for insurance.
          ``(3) Account holder.--The term `account holder' means the 
        individual on whose behalf the MedicarePlus MSA is maintained.
          ``(4) Certain rules to apply.--Rules similar to the rules of 
        subsections (g) and (h) of section 408 shall apply for purposes 
        of this section.
  ``(c) Tax Treatment of Accounts.--
          ``(1) In general.--A MedicarePlus MSA is exempt from taxation 
        under this subtitle unless such MSA has ceased to be a 
        MedicarePlus MSA by reason of paragraph (2). Notwithstanding 
        the preceding sentence, any such MSA is subject to the taxes 
        imposed by section 511 (relating to imposition of tax on 
        unrelated business income of charitable, etc. organizations).
          ``(2) Account assets treated as distributed in the case of 
        prohibited transactions or account pledged as security for 
        loan.--Rules similar to the rules of paragraphs (2) and (4) of 
        section 408(e) shall apply to MedicarePlus MSA's, and any 
        amount treated as distributed under such rules shall be treated 
        as not used to pay qualified medical expenses.
  ``(d) Tax Treatment of Distributions.--
          ``(1) Inclusion of amounts not used for qualified medical 
        expenses.--No amount shall be included in the gross income of 
        the account holder by reason of a payment or distribution from 
        a MedicarePlus MSA which is used exclusively to pay the 
        qualified medical expenses of the account holder. Any amount 
        paid or distributed from a MedicarePlus MSA which is not so 
        used shall be included in the gross income of such holder.
          ``(2) Penalty for distributions not used for qualified 
        medical expenses if minimum balance not maintained.--
                  ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a MedicarePlus MSA which is not used 
                exclusively to pay the qualified medical expenses of 
                the account holder shall be increased by 50 percent of 
                the excess (if any) of--
                          ``(i) the amount of such payment or 
                        distribution, over
                          ``(ii) the excess (if any) of--
                                  ``(I) the fair market value of the 
                                assets in the MedicarePlus MSA as of 
                                the close of the calendar year 
                                preceding the calendar year in which 
                                the taxable year begins, over
                                  ``(II) an amount equal to 60 percent 
                                of the deductible under the high 
                                deductible/medisave product covering 
                                the account holder as of January 1 of 
                                the calendar year in which the taxable 
                                year begins.
                  ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the payment or distribution is made on or after the 
                date the account holder--
                          ``(i) becomes disabled within the meaning of 
                        section 72(m)(7), or
                          ``(ii) dies.
                  ``(C) Special rules.--For purposes of subparagraph 
                (A)--
                          ``(i) all MedicarePlus MSA's of the account 
                        holder shall be treated as 1 account,
                          ``(ii) all payments and distributions not 
                        used exclusively to pay the qualified medical 
                        expenses of the account holder during any 
                        taxable year shall be treated as 1 
                        distribution, and
                          ``(iii) any distribution of property shall be 
                        taken into account at its fair market value on 
                        the date of the distribution.
          ``(3) Withdrawal of erroneous contributions.--Paragraphs (1) 
        and (2) shall not apply to any payment or distribution from a 
        MedicarePlus MSA to the Secretary of Health and Human Services 
        of an erroneous contribution to such MSA and of the net income 
        attributable to such contribution.
          ``(4) Trustee-to-trustee transfers.--Paragraphs (1) and (2) 
        shall not apply to any trustee-to-trustee transfer from a 
        MedicarePlus MSA of an account holder to another MedicarePlus 
        MSA of such account holder.
          ``(5) Coordination with medical expense deduction.--For 
        purposes of section 213, any payment or distribution out of a 
        MedicarePlus MSA for qualified medical expenses shall not be 
        treated as an expense paid for medical care.
  ``(e) Treatment of Account After Death of Account Holder.--
          ``(1) Treatment if designated beneficiary is spouse.--
                  ``(A) In general.--In the case of an account holder's 
                interest in a MedicarePlus MSA which is payable to (or 
                for the benefit of) such holder's spouse upon the death 
                of such holder, such MedicarePlus MSA shall be treated 
                as a MedicarePlus MSA of such spouse as of the date of 
                such death.
                  ``(B) Special rules if spouse not medicare 
                eligible.--If, as of the date of such death, such 
                spouse is not entitled to benefits under title XVIII of 
                the Social Security Act, then after the date of such 
                death--
                          ``(i) the Secretary of Health and Human 
                        Services may not make any payments to such 
                        MedicarePlus MSA, other than payments 
                        attributable to periods before such date,
                          ``(ii) in applying subsection (b)(2) with 
                        respect to such MedicarePlus MSA, references to 
                        the account holder shall be treated as 
                        including references to any dependent (as 
                        defined in section 152) of such spouse and any 
                        subsequent spouse of such spouse, and
                          ``(iii) in lieu of applying subsection 
                        (d)(2), the rules of section 220(f)(2) shall 
                        apply.
          ``(2) Treatment if designated beneficiary is not spouse.--In 
        the case of an account holder's interest in a MedicarePlus MSA 
        which is payable to (or for the benefit of) any person other 
        than such holder's spouse upon the death of such holder--
                  ``(A) such account shall cease to be a MedicarePlus 
                MSA as of the date of death, and
                  ``(B) an amount equal to the fair market value of the 
                assets in such account on such date shall be 
                includible--
                          ``(i) if such person is not the estate of 
                        such holder, in such person's gross income for 
                        the taxable year which includes such date, or
                          ``(ii) if such person is the estate of such 
                        holder, in such holder's gross income for last 
                        taxable year of such holder.
  ``(f) Reports.--
          ``(1) In general.--The trustee of a MedicarePlus MSA shall 
        make such reports regarding such account to the Secretary and 
        to the account holder with respect to--
                  ``(A) the fair market value of the assets in such 
                MedicarePlus MSA as of the close of each calendar year, 
                and
                  ``(B) contributions, distributions, and other 
                matters,
        as the Secretary may require by regulations.
          ``(2) Time and manner of reports.--The reports required by 
        this subsection--
                  ``(A) shall be filed at such time and in such manner 
                as the Secretary prescribes in such regulations, and
                  ``(B) shall be furnished to the account holder--
                          ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate, and
                          ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.''
  (b) Exclusion of MedicarePlus MSA's From Estate Tax.--Part IV of 
subchapter A of chapter 11 of such Code is amended by adding at the end 
the following new section:

``SEC. 2057. MEDICAREPLUS MSA'S.

  ``For purposes of the tax imposed by section 2001, the value of the 
taxable estate shall be determined by deducting from the value of the 
gross estate an amount equal to the value of any MedicarePlus MSA (as 
defined in section 137(b)) included in the gross estate.''
  (c) Tax on Prohibited Transactions.--
          (1) Section 4975 of such Code (relating to tax on prohibited 
        transactions) is amended by adding at the end of subsection (c) 
        the following new paragraph:
          ``(4) Special rule for MedicarePlus MSA's.--An individual for 
        whose benefit a MedicarePlus MSA (within the meaning of section 
        137(b)) is established shall be exempt from the tax imposed by 
        this section with respect to any transaction concerning such 
        account (which would otherwise be taxable under this section) 
        if, with respect to such transaction, the account ceases to be 
        a MedicarePlus MSA by reason of the application of section 
        137(c)(2) to such account.''
          (2) Paragraph (1) of section 4975(e) of such Code is amended 
        to read as follows:
          ``(1) Plan.--For purposes of this section, the term `plan' 
        means--
                  ``(A) a trust described in section 401(a) which forms 
                a part of a plan, or a plan described in section 
                403(a), which trust or plan is exempt from tax under 
                section 501(a),
                  ``(B) an individual retirement account described in 
                section 408(a),
                  ``(C) an individual retirement annuity described in 
                section 408(b),
                  ``(D) a medical savings account described in section 
                220(d),
                  ``(E) a MedicarePlus MSA described in section 137(b), 
                or
                  ``(F) a trust, plan, account, or annuity which, at 
                any time, has been determined by the Secretary to be 
                described in any preceding subparagraph of this 
                paragraph.''
  (d) Failure To Provide Reports on MedicarePlus MSA's.--
          (1) Subsection (a) of section 6693 of such Code (relating to 
        failure to provide reports on individual retirement accounts or 
        annuities) is amended to read as follows:
  ``(a) Reports.--
          ``(1) In general.--If a person required to file a report 
        under a provision referred to in paragraph (2) fails to file 
        such report at the time and in the manner required by such 
        provision, such person shall pay a penalty of $50 for each 
        failure unless it is shown that such failure is due to 
        reasonable cause.
          ``(2) Provisions.--The provisions referred to in this 
        paragraph are--
                  ``(A) subsections (i) and (l) of section 408 
                (relating to individual retirement plans),
                  ``(B) section 220(h) (relating to medical savings 
                accounts), and
                  ``(C) section 137(f) (relating to MedicarePlus 
                MSA's).''
          (2) The section heading for section 6693 of such Code is 
        amended to read as follows:

``SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RETIREMENT PLANS AND 
                    CERTAIN OTHER TAX-FAVORED ACCOUNTS; PENALTIES 
                    RELATING TO DESIGNATED NONDEDUCTIBLE 
                    CONTRIBUTIONS.''

  (e) Clerical Amendments.--
          (1) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following:

                              ``Sec. 137. MedicarePlus MSA's.
                              ``Sec. 138. Cross references to other 
                                        Acts.''

          (2) The table of sections for part 1 of subchapter B of 
        chapter 68 of such Code is amended by striking the item 
        relating to section 6693 and inserting the following new item:

                              ``Sec. 6693. Failure to file reports on 
                                        individual retirement plans and 
                                        certain other tax-favored 
                                        accounts; penalties relating to 
                                        designated nondeductible 
                                        contributions.''

          (3) The table of sections for part IV of subchapter A of 
        chapter 11 of such Code is amended by adding at the end the 
        following new item:

                              ``Sec. 2057. MedicarePlus MSA's.''

  (f) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 1996.

SEC. 15012. CERTAIN REBATES EXCLUDED FROM GROSS INCOME.

  (a) In General.--Section 105 of the Internal Revenue Code of 1986 
(relating to amounts received under accident and health plans) is 
amended by adding at the end the following new subsection:
  ``(j) Certain Rebates Under Social Security Act.--Gross income does 
not include any rebate received under section 1852(e)(1)(A) of the 
Social Security Act during the taxable year.''
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to amounts received after the date of the enactment of this Act.

      PART 3--SPECIAL ANTITRUST RULE FOR PROVIDER SERVICE NETWORKS

SEC. 15021. APPLICATION OF ANTITRUST RULE OF REASON TO PROVIDER SERVICE 
                    NETWORKS.

  (a) Rule of Reason Standard.--In any action under the antitrust laws, 
or under any State law similar to the antitrust laws--
          (1) the conduct of a provider service network in negotiating, 
        making, or performing a contract (including the establishment 
        and modification of a fee schedule and the development of a 
        panel of physicians), to the extent such contract is for the 
        purpose of providing health care services to individuals under 
        the terms of a MedicarePlus PSO product, and
          (2) the conduct of any member of such network for the purpose 
        of providing such health care services under such contract to 
        such extent,
shall not be deemed illegal per se. Such conduct shall be judged on the 
basis of its reasonableness, taking into account all relevant factors 
affecting competition, including the effects on competition in properly 
defined markets.
  (b) Definitions.--For purposes of subsection (a):
          (1) Antitrust laws.--The term ``antitrust laws'' has the 
        meaning given it in subsection (a) of the first section of the 
        Clayton Act (15 U.S.C. 12), except that such term includes 
        section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to 
        the extent that such section 5 applies to unfair methods of 
        competition.
          (2) Health care provider.--The term ``health care provider'' 
        means any individual or entity that is engaged in the delivery 
        of health care services in a State and that is required by 
        State law or regulation to be licensed or certified by the 
        State to engage in the delivery of such services in the State.
          (3) Health care service.--The term ``health care service'' 
        means any service for which payment may be made under a 
        MedicarePlus PSO product including services related to the 
        delivery or administration of such service.
          (4) MedicarePlus program.--The term ``MedicarePlus program'' 
        means the program under part C of title XVIII of the Social 
        Security Act.
          (5) MedicarePlus PSO product.--The term ``MedicarePlus PSO 
        product'' means a MedicarePlus product offered by a provider-
        sponsored organization under part C of title XVIII of the 
        Social Security Act.
          (6) Provider service network.--The term ``provider service 
        network'' means an organization that--
                  (A) is organized by, operated by, and composed of 
                members who are health care providers and for purposes 
                that include providing health care services,
                  (B) is funded in part by capital contributions made 
                by the members of such organization,
                  (C) with respect to each contract made by such 
                organization for the purpose of providing a type of 
                health care service to individuals under the terms of a 
                MedicarePlus PSO product--
                          (i) requires all members of such organization 
                        who engage in providing such type of health 
                        care service to agree to provide health care 
                        services of such type under such contract,
                          (ii) receives the compensation paid for the 
                        health care services of such type provided 
                        under such contract by such members, and
                          (iii) provides for the distribution of such 
                        compensation,
                  (D) has established, consistent with the requirements 
                of the MedicarePlus program for provider-sponsored 
                organizations, a program to review, pursuant to written 
                guidelines, the quality, efficiency, and 
                appropriateness of treatment methods and setting of 
                services for all health care providers and all patients 
                participating in such product, along with internal 
                procedures to correct identified deficiencies relating 
                to such methods and such services,
                  (E) has established, consistent with the requirements 
                of the MedicarePlus program for provider-sponsored 
                organizations, a program to monitor and control 
                utilization of health care services provided under such 
                product, for the purpose of improving efficient, 
                appropriate care and eliminating the provision of 
                unnecessary health care services,
                  (F) has established a management program to 
                coordinate the delivery of health care services for all 
                health care providers and all patients participating in 
                such product, for the purpose of achieving efficiencies 
                and enhancing the quality of health care services 
                provided, and
                  (G) has established, consistent with the requirements 
                of the MedicarePlus program for provider-sponsored 
                organizations, a grievance and appeal process for such 
                organization designed to review and promptly resolve 
                beneficiary or patient grievances and complaints.
        Such term may include a provider-sponsored organization.
          (7) Provider-sponsored organization.--The term ``provider-
        sponsored organization'' means a MedicarePlus organization 
        under the MedicarePlus program that is a provider-sponsored 
        organization (as defined in section ____ of the Social Security 
        Act).
          (8) State.--The term ``State'' has the meaning given it in 
        section 4G(2) of the Clayton Act (15 U.S.C. 15g(2)).
  (c) Issuance of Guidelines.--Not later than 120 days after the date 
of the enactment of this Act, the Attorney General and the Federal 
Trade Commission shall issue jointly guidelines specifying the 
enforcement policies and analytical principles that will be applied by 
the Department of Justice and the Commission with respect to the 
operation of subsection (a).

                          PART 4--COMMISSIONS

SEC. 15031. MEDICARE PAYMENT REVIEW COMMISSION.

  (a) In General.--Title XVIII, as amended by section 15001(a), is 
amended by inserting after section 1805 the following new section:
                  ``medicare payment review commission
  ``Sec. 1806. (a) Establishment.--There is hereby established the 
Medicare Payment Review Commission (in this section referred to as the 
`Commission').
  ``(b) Duties.--
          ``(1) General duties and reports.--The Commission shall 
        review, and make recommendations to Congress concerning, 
        payment policies under this title. By not later than June 1 of 
        each year, the Commission shall submit a report to Congress 
        containing an examination of issues affecting the medicare 
        program, including the implications of changes in health care 
        delivery in the United States and in the market for health care 
        services on the medicare program. The Commission may submit to 
        Congress from time to time such other reports as the Commission 
        deems appropriate. The Secretary shall respond to 
        recommendations of the Commission in notices of rulemaking 
        proceedings under this title.
          ``(2) Specific duties relating to medicareplus program.--
        Specifically, the Commission shall review, with respect to the 
        MedicarePlus program under part C--
                  ``(A) the appropriateness of the methodology for 
                making payment to plans under such program, including 
                the making of differential payments and the 
                distribution of differential updates among different 
                payment areas,
                  ``(B) the appropriateness of the mechanisms used to 
                adjust payments for risk and the need to adjust such 
                mechanisms to take into account health status of 
                beneficiaries,
                  ``(C) the implications of risk selection both among 
                MedicarePlus organizations and between the MedicarePlus 
                option and the non-MedicarePlus option,
                  ``(D) in relation to payment under part C, the 
                development and implementation of mechanisms to assure 
                the quality of care for those enrolled with 
                MedicarePlus organizations,
                  ``(F) the impact of the MedicarePlus program on 
                access to care for medicare beneficiaries, and
                  ``(G) other major issues in implementation and 
                further development of the MedicarePlus program.
          ``(3) Specific duties relating to the failsafe budget 
        mechanism.--Specifically, the Commission shall review, with 
        respect to the failsafe budget mechanism described in section 
        1895--
                  ``(A) the appropriateness of the expenditure 
                projections by the Secretary under section 1895(c) for 
                each medicare sector;
                  ``(B) the appropriateness of the growth factors for 
                each sector and the ability to take into account 
                substitution across sectors;
                  ``(C) the appropriateness of the mechanisms for 
                implementing reductions in payment amounts for 
                different sectors, including any adjustments to reflect 
                changes in volume or intensity resulting for any 
                payment reductions;
                  ``(D) the impact of the mechanism on provider 
                participation in parts A and B and in the MedicarePlus 
                program; and
                  ``(E) the appropriateness of the medicare benefit 
                budget (under section 1895(c)(2)(C) of the Social 
                Security Act), particularly for fiscal years after 
                fiscal year 2002.
          ``(4) Specific duties relating to the fee-for-service 
        system.--Specifically, the Commission shall review payment 
        policies under parts A and B, including--
                  ``(A) the factors affecting expenditures for services 
                in different sectors, including the process for 
                updating hospital, physician, and other fees,
                  ``(B) payment methodologies; and
                  ``(C) the impact of payment policies on access and 
                quality of care for medicare beneficiaries.
          ``(5) Specific duties relating to interaction of payment 
        policies with health care delivery generally.--Specifically the 
        Commission shall review the effect of payment policies under 
        this title on the delivery of health care services under this 
        title and assess the implications of changes in the health 
        services market on the medicare program.
  ``(c) Membership.--
          ``(1) Number and appointment.--The Commission shall be 
        composed of 15 members appointed by Comptroller General.
          ``(2) Qualifications.--The membership of the Commission shall 
        include individuals with national recognition for their 
        expertise in health finance and economics, actuarial science, 
        health facility management, health plans and integrated 
        delivery systems, reimbursement of health facilities, 
        physicians, and other providers of services, and other related 
        fields, who provide a mix of different professionals, broad 
        geographic representation, and a balance between urban and 
        rural representatives, including physicians and other health 
        professionals, employers, third party payors, individuals 
        skilled in the conduct and interpretation of biomedical, health 
        services, and health economics research and expertise in 
        outcomes and effectiveness research and technology assessment. 
        Such membership shall also include representatives of consumers 
        and the elderly.
          ``(3) Considerations in initial appointment.--To the extent 
        possible, in first appointing members to the Commission shall 
        consider appointing individuals who (as of the date of the 
        enactment of this section) were serving on the Prospective 
        Payment Assessment Commission or the Physician Payment Review 
        Commission.
          ``(4) Terms.--
                  ``(A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered terms for 
                the members first appointed.
                  ``(B) Vacancies.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Commission shall be filled in the manner in which the 
                original appointment was made.
          ``(5) Compensation.--While serving on the business of the 
        Commission (including traveltime), a member of the Commission 
        shall be entitled to compensation at the per diem equivalent of 
        the rate provided for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code; and while so 
        serving away from home and member's regular place of business, 
        a member may be allowed travel expenses, as authorized by the 
        Chairman of the Commission. Physicians serving as personnel of 
        the Commission may be provided a physician comparability 
        allowance by the Commission in the same manner as Government 
        physicians may be provided such an allowance by an agency under 
        section 5948 of title 5, United States Code, and for such 
        purpose subsection (i) of such section shall apply to the 
        Commission in the same manner as it applies to the Tennessee 
        Valley Authority. For purposes of pay (other than pay of 
        members of the Commission) and employment benefits, rights, and 
        privileges, all personnel of the Commission shall be treated as 
        if they were employees of the United States Senate.
          ``(6) Chairman; vice chairman.--The Comptroller General shall 
        designate a member of the Commission, at the time of 
        appointment of the member, as Chairman and a member as Vice 
        Chairman for that term of appointment.
          ``(7) Meetings.--The Commission shall meet at the call of the 
        Chairman.
  ``(d) Director and Staff; Experts and Consultants.--Subject to such 
review as the Comptroller General deems necessary to assure the 
efficient administration of the Commission, the Commission may--
          ``(1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller General) 
        and such other personnel as may be necessary to carry out its 
        duties (without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive 
        service);
          ``(2) seek such assistance and support as may be required in 
        the performance of its duties from appropriate Federal 
        departments and agencies;
          ``(3) enter into contracts or make other arrangements, as may 
        be necessary for the conduct of the work of the Commission 
        (without regard to section 3709 of the Revised Statutes (41 
        U.S.C. 5));
          ``(4) make advance, progress, and other payments which relate 
        to the work of the Commission;
          ``(5) provide transportation and subsistence for persons 
        serving without compensation; and
          ``(6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
  ``(e) Powers.--
          ``(1) Obtaining official data.--The Commission may secure 
        directly from any department or agency of the United States 
        information necessary to enable it to carry out this section. 
        Upon request of the Chairman, the head of that department or 
        agency shall furnish that information to the Commission on an 
        agreed upon schedule.
          ``(2) Data collection.--In order to carry out its functions, 
        the Commission shall collect and assess information--
                  ``(A) utilize existing information, both published 
                and unpublished, where possible, collected and assessed 
                either by its own staff or under other arrangements 
                made in accordance with this section,
                  ``(B) carry out, or award grants or contracts for, 
                original research and experimentation, where existing 
                information is inadequate, and
                  ``(C) adopt procedures allowing any interested party 
                to submit information for the Commission's use in 
                making reports and recommendations.
          ``(3) Access of gao to information.--The Comptroller General 
        shall have unrestricted access to all deliberations, records, 
        and data of the Commission, immediately upon request.
          ``(4) Periodic audit.--The Commission shall be subject to 
        periodic audit by the General Accounting Office.
  ``(f) Authorization of Appropriations.--
          ``(1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner as the 
        Comptroller General submits requests for appropriations, but 
        amounts appropriated for the Commission shall be separate from 
        amounts appropriated for the Comptroller General.
          ``(2) Authorization.--There are authorized to be appropriated 
        such sums as may be necessary to carry out the provisions of 
        this section. 60 percent of such appropriation shall be payable 
        from the Federal Hospital Insurance Trust Fund, and 40 percent 
        of such appropriation shall be payable from the Federal 
        Supplementary Medical Insurance Trust Fund.''.
  (b) Abolition of ProPAC and PPRC.--
          (1) PROPAC.--
                  (A) In general.--Section 1886(e) (42 U.S.C. 
                1395ww(e)) is amended--
                          (i) by striking paragraphs (2) and (6); and
                          (ii) in paragraph (3), by striking ``(A) The 
                        Commission'' and all that follows through 
                        ``(B)''.
                  (B) Conforming amendment.--Section 1862 (42 U.S.C. 
                1395y) is amended by striking ``Prospective Payment 
                Assessment Commission'' each place it appears in 
                subsection (a)(1)(D) and subsection (i) and inserting 
                ``Medicare Payment Review Commission''.
          (2) PPRC.--
                  (A) In general.--Title XVIII is amended by striking 
                section 1845 (42 U.S.C. 1395w-1).
                  (B) Conforming amendments.--
                          (i) Section 1834(b)(2) (42 U.S.C. 
                        1395m(b)(2)) is amended by striking ``Physician 
                        Payment Review Commission'' and inserting 
                        ``Medicare Payment Review Commission''.
                          (ii) Section 1842(b) (42 U.S.C. 1395u(b)) is 
                        amended by striking ``Physician Payment Review 
                        Commission'' each place it appears in 
                        paragraphs (9)(D) and (14)(C)(i) and inserting 
                        ``Medicare Payment Review Commission''.
                          (iii) Section 1848 (42 U.S.C. 1395w-4) is 
                        amended by striking ``Physician Payment Review 
                        Commission'' and inserting ``Medicare Payment 
                        Review Commission'' each place it appears in 
                        paragraphs (2)(A)(ii), (2)(B)(iii), and (5) of 
                        subsection (c), subsection (d)(2)(F), 
                        paragraphs (1)(B), (3), and (4)(A) of 
                        subsection (f), and paragraphs (6)(C) and 
                        (7)(C) of subsection (g).
  (c) Effective Date; Transition.--
          (1) In general.--The Comptroller General shall first provide 
        for appointment of members to the Medicare Payment Review 
        Commission (in this subsection referred to as ``MPRC'') by not 
        later than March 31, 1996.
          (2) Transition.--Effective on a date (not later than 30 days 
        after the date a majority of members of the MPRC have first 
        been appointed, the Prospective Payment Assessment Commission 
        (in this subsection referred to as ``ProPAC'') and the 
        Physician Payment Review Commission (in this subsection 
        referred to as ``PPRC''), and amendments made by subsection 
        (b), are terminated. The Comptroller General, to the maximum 
        extent feasible, shall provide for the transfer to the MPRC of 
        assets and staff of ProPAC and PPRC, without any loss of 
        benefits or seniority by virtue of such transfers. Fund 
        balances available to the ProPAC or PPRC for any period shall 
        be available to the MPRC for such period for like purposes.
          (3) Continuing responsibility for reports.--The MPRC shall be 
        responsible for the preparation and submission of reports 
        required by law to be submitted (and which have not been 
        submitted by the date of establishment of the MPRC) by the 
        ProPAC and PPRC, and, for this purpose, any reference in law to 
        either such Commission is deemed, after the appointment of the 
        MPRC, to refer to the MPRC.

SEC. 15032. COMMISSION ON THE EFFECT OF THE BABY BOOM GENERATION ON THE 
                    MEDICARE PROGRAM.

  (a) Establishment.--There is established a commission to be known as 
the Commission on the Effect of the Baby Boom Generation on the 
Medicare Program (in this section referred to as the ``Commission'').
  (b) Duties.--
          (1) In general.--The Commission shall--
                  (A) examine the financial impact on the medicare 
                program of the significant increase in the number of 
                medicare eligible individuals which will occur 
                beginning approximately during 2010 and lasting for 
                approximately 25 years, and
                  (B) make specific recommendations to the Congress 
                respecting a comprehensive approach to preserve the 
                medicare program for the period during which such 
                individuals are eligible for medicare.
          (2) Considerations in making recommendations.--In making its 
        recommendations, the Commission shall consider the following:
                  (A) The amount and sources of Federal funds to 
                finance the medicare program, including the potential 
                use of innovative financing methods.
                  (B) The most efficient and effective manner of 
                administering the program, including the 
                appropriateness of continuing the application of the 
                failsafe budget mechanism under section 1895 of the 
                Social Security Act for fiscal years after fiscal year 
                2002 and the appropriate long-term growth rates for 
                contributions electing coverage under MedicarePlus 
                under part C of title XVIII of such Act.
                  (C) Methods used by other nations to respond to 
                comparable demographic patterns in eligibility for 
                health care benefits for elderly and disabled 
                individuals.
                  (D) Modifying age-based eligibility to correspond to 
                changes in age-based eligibility under the OASDI 
                program.
                  (E) Trends in employment-related health care for 
                retirees, including the use of medical savings accounts 
                and similar financing devices.
  (c) Membership.--
          (1) Appointment.--The Commission shall be composed of 15 
        members appointed as follows:
                  (A) The President shall appoint 3 members.
                  (B) The Majority Leader of the Senate shall appoint, 
                after consultation with the minority leader of the 
                Senate, 6 members, of whom not more than 4 may be of 
                the same political party.
                  (C) The Speaker of the House of Representatives shall 
                appoint, after consultation with the minority leader of 
                the House of Representatives, 6 members, of whom not 
                more than 4 may be of the same political party.
          (2) Chairman and vice chairman.--The Commission shall elect a 
        Chairman and Vice Chairman from among its members.
          (3) Vacancies.--Any vacancy in the membership of the 
        Commission shall be filled in the manner in which the original 
        appointment was made and shall not affect the power of the 
        remaining members to execute the duties of the Commission.
          (4) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (e).
          (5) Meetings.--The Commission shall meet at the call of its 
        Chairman or a majority of its members.
          (6) Compensation and reimbursement of expenses.--Members of 
        the Commission are not entitled to receive compensation for 
        service on the Commission. Members may be reimbursed for 
        travel, subsistence, and other necessary expenses incurred in 
        carrying out the duties of the Commission.
  (d) Staff and Consultants.--
          (1) Staff.--The Commission may appoint and determine the 
        compensation of such staff as may be necessary to carry out the 
        duties of the Commission. Such appointments and compensation 
        may be made without regard to the provisions of title 5, United 
        States Code, that govern appointments in the competitive 
        services, and the provisions of chapter 51 and subchapter III 
        of chapter 53 of such title that relate to classifications and 
        the General Schedule pay rates.
          (2) Consultants.--The Commission may procure such temporary 
        and intermittent services of consultants under section 3109(b) 
        of title 5, United States Code, as the Commission determines to 
        be necessary to carry out the duties of the Commission.
  (e) Powers.--
          (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission 
        determines to be necessary to carry out its duties.
          (2) Studies by gao.--Upon the request of the Commission, the 
        Comptroller General shall conduct such studies or 
        investigations as the Commission determines to be necessary to 
        carry out its duties.
          (3) Cost estimates by congressional budget office.--
                  (A) Upon the request of the Commission, the Director 
                of the Congressional Budget Office shall provide to the 
                Commission such cost estimates as the Commission 
                determines to be necessary to carry out its duties.
                  (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating 
                to the employment in the office of the Director of such 
                additional staff as may be necessary for the Director 
                to comply with requests by the Commission under 
                subparagraph (A).
          (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or 
        otherwise affect the civil service status or privileges of the 
        Federal employee.
          (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
          (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be 
        considered a commission of Congress as described in section 
        3215 of title 39, United States Code.
          (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to 
        enable it to carry out its duties, if the information may be 
        disclosed under section 552 of title 5, United States Code. 
        Upon request of the Chairman of the Commission, the head of 
        such agency shall furnish such information to the Commission.
          (8) Administrative support services.--Upon the request of the 
        Commission, the Administrator of General Services shall provide 
        to the Commission on a reimbursable basis such administrative 
        support services as the Commission may request.
          (9) Acceptance of donations.--The Commission may accept, use, 
        and dispose of gifts or donations of services or property.
          (10) Printing.--For purposes of costs relating to printing 
        and binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to 
        be a committee of the Congress.
  (f) Report.--Not later than May 1, 1997, the Commission shall submit 
to Congress a report containing its findings and recommendations 
regarding how to protect and preserve the medicare program in a 
financially solvent manner until 2030 (or, if later, throughout the 
period of projected solvency of the Federal Old-Age and Survivors 
Insurance Trust Fund). The report shall include detailed 
recommendations for appropriate legislative initiatives respecting how 
to accomplish this objective.
  (g) Termination.--The Commission shall terminate 60 days after the 
date of submission of the report required in subsection (f).
  (h) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section. Amounts appropriated 
to carry out this section shall remain available until expended.

SEC. 15033. CHANGE IN APPOINTMENT OF ADMINISTRATOR OF HCFA.

  (a) In General.--Section 1117 (42 U.S.C. 1317) is amended by striking 
``President by and with the advice and consent of the Senate'' and 
inserting ``Secretary of Health and Human Services''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act and shall apply to 
Administrators appointed on or after the date of the enactment of this 
Act.

PART 5--TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-SPONSORED 
                             ORGANIZATIONS

SEC. 15041. TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
                    SPONSORED ORGANIZATIONS.

  (a) In General.--Section 501 of the Internal Revenue Code of 1986 
(relating to exemption from tax on corporations, certain trusts, etc.) 
is amended by redesignating subsection (n) as subsection (o) and by 
inserting after subsection (m) the following new subsection:
  ``(n) Treatment of Hospitals Participating in Provider-Sponsored 
Organizations.--An organization shall not fail to be treated as 
organized and operated exclusively for a charitable purpose for 
purposes of subsection (c)(3) solely because a hospital which is owned 
and operated by such organization participates in a provider-sponsored 
organization (as defined in section 1854(a)(1) of the Social Security 
Act), whether or not the provider-sponsored organization is exempt from 
tax. For purposes of subsection (c)(3), any person with a material 
financial interest in such a provider-sponsored organization shall be 
treated as a private shareholder or individual with respect to the 
hospital.''
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

                 Subtitle B--Preventing Fraud and Abuse

SEC. 15101. INCREASING AWARENESS OF FRAUD AND ABUSE.

  (a) Beneficiary Outreach Efforts.--The Secretary of Health and Human 
Services (acting through the Administrator of the Health Care Financing 
Administration and the Inspector General of the Department of Health 
and Human Services) shall make ongoing efforts (through public service 
announcements, publications, and other appropriate methods) to alert 
individuals entitled to benefits under the medicare program of the 
existence of fraud and abuse committed against the program and the 
costs to the program of such fraud and abuse, and of the existence of 
the toll-free telephone line operated by the Secretary to receive 
information on fraud and abuse committed against the program.
  (b) Clarification of Requirement To Provide Explanation of Medicare 
Benefits.--The Secretary shall provide an explanation of benefits under 
the medicare program with respect to each item or service for which 
payment may be made under the program which is furnished to an 
individual, without regard to whether or not a deductible or 
coinsurance may be imposed against the individual with respect to the 
item or service.
  (c) Provider Outreach Efforts; Publication of Fraud Alerts.--
          (1) Special fraud alerts.--
                  (A) In general.--
                          (i) Request for special fraud alerts.--Any 
                        person may present, at any time, a request to 
                        the Secretary to issue and publish a special 
                        fraud alert.
                          (ii) Special fraud alert defined.--In this 
                        section, a ``special fraud alert'' is a notice 
                        which informs the public of practices which the 
                        Secretary considers to be suspect or of 
                        particular concern under the medicare program 
                        or a State health care program (as defined in 
                        section 1128(h) of the Social Security Act).
                  (B) Issuance and publication of special fraud 
                alerts.--
                          (i) Investigation.--Upon receipt of a request 
                        for a special fraud alert under subparagraph 
                        (A), the Secretary shall investigate the 
                        subject matter of the request to determine 
                        whether a special fraud alert should be issued. 
                        If appropriate, the Secretary (in consultation 
                        with the Attorney General) shall issue a 
                        special fraud alert in response to the request. 
                        All special fraud alerts issued pursuant to 
                        this subparagraph shall be published in the 
                        Federal Register.
                          (ii) Criteria for issuance.--In determining 
                        whether to issue a special fraud alert upon a 
                        request under subparagraph (A), the Secretary 
                        may consider--
                                  (I) whether and to what extent the 
                                practices that would be identified in 
                                the special fraud alert may result in 
                                any of the consequences described in 
                                15214(b); and
                                  (II) the extent and frequency of the 
                                conduct that would be identified in the 
                                special fraud alert.
          (2) Publication of all hcfa fraud alerts in federal 
        register.--Each notice issued by the Health Care Financing 
        Administration which informs the public of practices which the 
        Secretary considers to be suspect or of particular concern 
        under the medicare program or a State health care program (as 
        defined in section 1128(h) of the Social Security Act) shall be 
        published in the Federal Register, without regard to whether or 
        not the notice is issued by a regional office of the Health 
        Care Financing Administration.

SEC. 15102. BENEFICIARY INCENTIVE PROGRAMS.

  (a) Program to Collect Information on Fraud and Abuse.--
          (1) Establishment of program.--Not later than 3 months after 
        the date of the enactment of this Act, the Secretary of Health 
        and Human Services (hereinafter in this subtitle referred to as 
        the ``Secretary'') shall establish a program under which the 
        Secretary shall encourage individuals to report to the 
        Secretary information on individuals and entities who are 
        engaging or who have engaged in acts or omissions which 
        constitute grounds for the imposition of a sanction under 
        section 1128, section 1128A, or section 1128B of the Social 
        Security Act, or who have otherwise engaged in fraud and abuse 
        against the medicare program for which there is a sanction 
        provided under law. The program shall discourage provision of, 
        and not consider, information which is frivolous or otherwise 
        not relevant or material to the imposition of such a sanction.
          (2) Payment of portion of amounts collected.--If an 
        individual reports information to the Secretary under the 
        program established under paragraph (1) which serves as the 
        basis for the collection by the Secretary or the Attorney 
        General of any amount of at least $100 (other than any amount 
        paid as a penalty under section 1128B of the Social Security 
        Act), the Secretary may pay a portion of the amount collected 
        to the individual (under procedures similar to those applicable 
        under section 7623 of the Internal Revenue Code of 1986 to 
        payments to individuals providing information on violations of 
        such Code).
  (b) Program to Collect Information on Program Efficiency.--
          (1) Establishment of program.--Not later than 3 months after 
        the date of the enactment of this Act, the Secretary shall 
        establish a program under which the Secretary shall encourage 
        individuals to submit to the Secretary suggestions on methods 
        to improve the efficiency of the medicare program.
          (2) Payment of portion of program savings.--If an individual 
        submits a suggestion to the Secretary under the program 
        established under paragraph (1) which is adopted by the 
        Secretary and which results in savings to the program, the 
        Secretary may make a payment to the individual of such amount 
        as the Secretary considers appropriate.

SEC. 15103. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE 
                    ORGANIZATIONS.

  (a) Application of Intermediate Sanctions for Any Program 
Violations.--
          (1) In general.--Section 1876(i)(1) (42 U.S.C. 1395mm(i)(1)) 
        is amended by striking ``the Secretary may terminate'' and all 
        that follows and inserting the following: ``in accordance with 
        procedures established under paragraph (9), the Secretary may 
        at any time terminate any such contract or may impose the 
        intermediate sanctions described in paragraph (6)(B) or (6)(C) 
        (whichever is applicable) on the eligible organization if the 
        Secretary determines that the organization--
          ``(A) has failed substantially to carry out the contract;
          ``(B) is carrying out the contract in a manner inconsistent 
        with the efficient and effective administration of this 
        section;
          ``(C) is operating in a manner that is not in the best 
        interests of the individuals covered under the contract; or
          ``(D) no longer substantially meets the applicable conditions 
        of subsections (b), (c), and (e).''.
          (2) Other intermediate sanctions for miscellaneous program 
        violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is 
        amended by adding at the end the following new subparagraph:
  ``(C) In the case of an eligible organization for which the Secretary 
makes a determination under paragraph (1) the basis of which is not 
described in subparagraph (A), the Secretary may apply the following 
intermediate sanctions:
          ``(i) civil money penalties of not more than $25,000 for each 
        determination under paragraph (1) if the deficiency that is the 
        basis of the determination has directly adversely affected (or 
        has the substantial likelihood of adversely affecting) an 
        individual covered under the organization's contract;
          ``(ii) civil money penalties of not more than $10,000 for 
        each week beginning after the initiation of procedures by the 
        Secretary under paragraph (9) during which the deficiency that 
        is the basis of a determination under paragraph (1) exists; and
          ``(iii) suspension of enrollment of individuals under this 
        section after the date the Secretary notifies the organization 
        of a determination under paragraph (1) and until the Secretary 
        is satisfied that the deficiency that is the basis for the 
        determination has been corrected and is not likely to recur.''.
          (3) Procedures for imposing sanctions.--Section 1876(i) (42 
        U.S.C. 1395mm(i)) is amended by adding at the end the following 
        new paragraph:
  ``(9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate 
sanctions described in paragraph (6) on the organization in accordance 
with formal investigation and compliance procedures established by the 
Secretary under which--
          ``(A) the Secretary provides the organization with the 
        opportunity to develop and implement a corrective action plan 
        to correct the deficiencies that were the basis of the 
        Secretary's determination under paragraph (1);
          ``(B) the Secretary shall impose more severe sanctions on 
        organizations that have a history of deficiencies or that have 
        not taken steps to correct deficiencies the Secretary has 
        brought to their attention;
          ``(C) there are no unreasonable or unnecessary delays between 
        the finding of a deficiency and the imposition of sanctions; 
        and
          ``(D) the Secretary provides the organization with reasonable 
        notice and opportunity for hearing (including the right to 
        appeal an initial decision) before imposing any sanction or 
        terminating the contract.''.
          (4) Conforming amendments.--(A) Section 1876(i)(6)(B) (42 
        U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
        sentence.
          (B) Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is further 
        amended by adding at the end the following new subparagraph:
  ``(D) The provisions of section 1128A (other than subsections (a) and 
(b)) shall apply to a civil money penalty under subparagraph (A) or (B) 
in the same manner as they apply to a civil money penalty or proceeding 
under section 1128A(a).''.
  (b) Effective Date.--The amendments made by this section shall apply 
with respect to contract years beginning on or after January 1, 1996.

SEC. 15104. VOLUNTARY DISCLOSURE PROGRAM.

  Title XI (42 U.S.C. 1301 et seq.) is amended by inserting after 
section 1128B the following new section:
              ``voluntary disclosure of acts or omissions
  ``Sec. 1129. (a) Establishment of Voluntary Disclosure Program.--Not 
later than 3 months after the date of the enactment of this section, 
the Secretary shall establish a program to encourage individuals and 
entities to voluntarily disclose to the Secretary information on acts 
or omissions of the individual or entity which constitute grounds for 
the imposition of a sanction described in section 1128, 1128A, or 
1128B.
  ``(b) Effect of Voluntary Disclosure.--If an individual or entity 
voluntarily discloses information with respect to an act or omission to 
the Secretary under subsection (a), the following rules shall apply:
          ``(1) The Secretary may waive, reduce, or otherwise mitigate 
        any sanction which would otherwise be applicable to the 
        individual or entity under section 1128, 1128A, or 1128B as a 
        result of the act or omission involved.
          ``(2) No qui tam action may be brought pursuant to chapter 37 
        of title 31, United States Code, against the individual or 
        entity with respect to the act or omission involved.''.

SEC. 15105. REVISIONS TO CURRENT SANCTIONS.

  (a) Doubling the Amount of Civil Monetary Penalties.--The maximum 
amount of civil monetary penalties specified in section 1128A of the 
Social Security Act or under title XVIII of such Act (as in effect on 
the day before the date of the enactment of this Act) shall, effective 
for violations occurring after the date of the enactment of this Act, 
be double the amount otherwise provided as of such date.
  (b) Establishment of Minimum Period of Exclusion for Certain 
Individuals and Entities Subject to Permissive Exclusion.--Section 
1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding at the end 
the following new subparagraphs:
  ``(D) In the case of an exclusion of an individual or entity under 
paragraph (1), (2), or (3) of subsection (b), the period of the 
exclusion shall be 3 years, unless the Secretary determines in 
accordance with regulations that a shorter period is appropriate 
because of mitigating circumstances or that a longer period is 
appropriate because of aggravating circumstances.
  ``(E) In the case of an exclusion of an individual or entity under 
subsection (b)(4) or (b)(5), the period of the exclusion shall not be 
less than the period during which the individual's or entity's license 
to provide health care is revoked, suspended, or surrendered, or the 
individual or the entity is excluded or suspended from a Federal or 
State health care program.
  ``(F) In the case of an exclusion of an individual or entity under 
subsection (b)(6)(B), the period of the exclusion shall be not less 
than 1 year.''.
  (c) Effective Date.--The amendments made by this section shall apply 
with respect to acts or omissions occurring on or after January 1, 
1996.

SEC. 15106. DIRECT SPENDING FOR ANTI-FRAUD ACTIVITIES UNDER MEDICARE.

  (a) Establishment of Medicare Integrity Program.--Title XVIII is 
amended by adding at the end the following new section:
                      ``medicare integrity program
  ``Sec. 1893. (a) Establishment of Program.--There is hereby 
established the Medicare Integrity Program (hereafter in this section 
referred to as the `Program') under which the Secretary shall promote 
the integrity of the medicare program by entering into contracts in 
accordance with this section with eligible private entities to carry 
out the activities described in subsection (b).
  ``(b) Activities Described.--The activities described in this 
subsection are as follows:
          ``(1) Review of activities of providers of services or other 
        individuals and entities furnishing items and services for 
        which payment may be made under this title (including skilled 
        nursing facilities and home health agencies), including medical 
        and utilization review and fraud review (employing similar 
        standards, processes, and technologies used by private health 
        plans, including equipment and software technologies which 
        surpass the capability of the equipment and technologies used 
        in the review of claims under this title as of the date of the 
        enactment of this section).
          ``(2) Audit of cost reports.
          ``(3) Determinations as to whether payment should not be, or 
        should not have been, made under this title by reason of 
        section 1862(b), and recovery of payments that should not have 
        been made.
          ``(4) Education of providers of services, beneficiaries, and 
        other persons with respect to payment integrity and benefit 
        quality assurance issues.
  ``(c) Eligibility of Entities.--An entity is eligible to enter into a 
contract under the Program to carry out any of the activities described 
in subsection (b) if--
          ``(1) the entity has demonstrated capability to carry out 
        such activities;
          ``(2) 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 of the United 
        States, 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;
          ``(3) the entity's financial holdings, interests, or 
        relationships will not interfere with its ability to perform 
        the functions to be required by the contract in an effective 
        and impartial manner; and
          ``(4) the entity meets such other requirements as the 
        Secretary may impose.
  ``(d) Process for Entering Into Contracts.--The Secretary shall enter 
into contracts under the Program in accordance with such procedures as 
the Secretary may by regulation establish, except that such procedures 
shall include the following:
          ``(1) The Secretary shall determine the appropriate number of 
        separate contracts which are necessary to carry out the Program 
        and the appropriate times at which the Secretary shall enter 
        into such contracts.
          ``(2) The provisions of section 1153(e)(1) shall apply to 
        contracts and contracting authority under this section, except 
        that competitive procedures must be used when entering into new 
        contracts under this section, or at any other time considered 
        appropriate by the Secretary.
          ``(3) 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.
  ``(e) 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.
  ``(f) Transfer of Amounts to Medicare Anti-Fraud and Abuse Trust 
Fund.--For each fiscal year, the Secretary shall transfer from the 
Federal Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund to the Medicare Anti-Fraud and Abuse Trust 
Fund under subsection (g) such amounts as are necessary to carry out 
the activities described in subsection (b). Such transfer shall be in 
an allocation as reasonably reflects the proportion of such 
expenditures associated with part A and part B.
  ``(g) Medicare Anti-Fraud and Abuse Trust Fund.--
          ``(1) Establishment.--
                  ``(A) In general.--There is hereby established in the 
                Treasury of the United States the Anti-Fraud and Abuse 
                Trust Fund (hereafter in this subsection referred to as 
                the `Trust Fund'). The Trust Fund shall consist of such 
                gifts and bequests as may be made as provided in 
                subparagraph (B) and such amounts as may be deposited 
                in the Trust Fund as provided in subsection (f), 
                paragraph (3), and title XI.
                  ``(B) Authorization to accept gifts and bequests.--
                The Trust Fund is authorized to accept on behalf of the 
                United States money gifts and bequests made 
                unconditionally to the Trust Fund, for the benefit of 
                the Trust Fund or any activity financed through the 
                Trust Fund.
          ``(2) Investment.--
                  ``(A) In general.--The Secretary of the Treasury 
                shall invest such amounts of the Fund as such Secretary 
                determines are not required to meet current withdrawals 
                from the Fund in government account serial securities.
                  ``(B) Use of income.--Any interest derived from 
                investments under subparagraph (A) shall be credited to 
                the Fund.
          ``(3) Amounts deposited into trust fund.--In addition to 
        amounts transferred under subsection (f), there shall be 
        deposited in the Trust Fund--
                  ``(A) that portion of amounts recovered in relation 
                to section 1128A arising out of a claim under title 
                XVIII as remains after application of subsection (f)(2) 
                (relating to repayment of the Federal Hospital 
                Insurance Trust Fund or the Federal Supplementary 
                Medical Insurance Trust Fund) of that section, as may 
                be applicable,
                  ``(B) fines imposed under section 1128B arising out 
                of a claim under this title, and
                  ``(C) penalties and damages imposed (other than funds 
                awarded to a relator or for restitution) under sections 
                3729 through 3732 of title 31, United States Code 
                (pertaining to false claims) in cases involving claims 
                relating to programs under title XVIII, XIX, or XXI.
          ``(4) Direct appropriation of funds to carry out program.--
                  ``(A) In general.--There are appropriated from the 
                Trust Fund for each fiscal year such amounts as are 
                necessary to carry out the Medicare Integrity Program 
                under this section, subject to subparagraph (B).
                  ``(B) Amounts specified.--The amount appropriated 
                under subparagraph (A) for a fiscal year is as follows:
                          ``(i) For fiscal year 1996, such amount shall 
                        be not less than $430,000,000 and not more than 
                        $440,000,000.
                          ``(ii) For fiscal year 1997, such amount 
                        shall be not less than $490,000,000 and not 
                        more than $500,000,000.
                          ``(iii) For fiscal year 1998, such amount 
                        shall be not less than $550,000,000 and not 
                        more than $560,000,000.
                          ``(iv) For fiscal year 1999, such amount 
                        shall be not less than $620,000,000 and not 
                        more than $630,000,000.
                          ``(v) For fiscal year 2000, such amount shall 
                        be not less than $670,000,000 and not more than 
                        $680,000,000.
                          ``(vi) For fiscal year 2001, such amount 
                        shall be not less than $690,000,000 and not 
                        more than $700,000,000.
                          ``(vii) For fiscal year 2002, such amount 
                        shall be not less than $710,000,000 and not 
                        more than $720,000,000.
          ``(5) Annual report.--The Secretary shall submit an annual 
        report to Congress on the amount of revenue which is generated 
        and disbursed by the Trust Fund in each fiscal year.''.
  (b) Elimination of FI and Carrier Responsibility for Carrying out 
Activities Subject to Program.--
          (1) Responsibilities of fiscal intermediaries under part a.--
        Section 1816 (42 U.S.C. 1395h) is amended by adding at the end 
        the following new subsection:
  ``(l) No agency or organization may carry out (or receive payment for 
carrying out) any activity pursuant to an agreement under this section 
to the extent that the activity is carried out pursuant to a contract 
under the Medicare Integrity Program under section 1893.''.
          (2) Responsibilities of carriers under part b.--Section 
        1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end 
        the following new paragraph:
  ``(6) No carrier may carry out (or receive payment for carrying out) 
any activity pursuant to a contract under this subsection to the extent 
that the activity is carried out pursuant to a contract under the 
Medicare Integrity Program under section 1893.''.
  (c) Conforming Amendment.--Section 1128A(f)(3) (42 U.S.C. 1320a-
7a(f)(3)) is amended by striking ``as miscellaneous receipts of the 
Treasury of the United States'' and inserting ``in the Anti-Fraud and 
Abuse Trust Fund established under section 1893(g)''.
  (d) Direct Spending for Medicare-Related Activities of Inspector 
General.--Section 1893, as added by subsection (a), is amended by 
adding at the end the following new subsection:
  ``(h) Direct Spending for Medicare-Related Activities of Inspector 
General.--
          ``(1) In general.--There are appropriated from the Federal 
        Hospital Insurance Trust Fund and the Federal Supplementary 
        Medical Insurance Trust Fund to the Inspector General of the 
        Department of Health and Human Services for each fiscal year 
        such amounts as are necessary to enable the Inspector General 
        to carry out activities relating to the medicare program (as 
        described in paragraph (2)), subject to paragraph (3).
          ``(2) Activities described.--The activities described in this 
        paragraph are as follows:
                  ``(A) Prosecuting medicare-related matters through 
                criminal, civil, and administrative proceedings.
                  ``(B) Conducting investigations relating to the 
                medicare program.
                  ``(C) Performing financial and performance audits of 
                programs and operations relating to the medicare 
                program.
                  ``(D) Performing inspections and other evaluations 
                relating to the medicare program.
                  ``(E) Conducting provider and consumer education 
                activities regarding the requirements of this title.
          ``(3) Amounts specified.--The amount appropriated under 
        paragraph (1) for a fiscal year is as follows:
                  ``(A) For fiscal year 1996, such amount shall be 
                $130,000,000.
                  ``(B) For fiscal year 1997, such amount shall be 
                $181,000,000.
                  ``(C) For fiscal year 1998, such amount shall be 
                $204,000,000.
                  ``(D) For each subsequent fiscal year, the amount 
                appropriated for the previous fiscal year, increased by 
                the percentage increase in aggregate expenditures under 
                this title for the fiscal year involved over the 
                previous fiscal year.
          ``(4) Allocation of payments among trust funds.--The 
        appropriations made under paragraph (1) shall be in an 
        allocation as reasonably reflects the proportion of such 
        expenditures associated with part A and part B.''.

SEC. 15107. PERMITTING CARRIERS TO CARRY OUT PRIOR AUTHORIZATION FOR 
                    CERTAIN ITEMS OF DURABLE MEDICAL EQUIPMENT.

  (a) In General.--Section 1834(a)(15) (42 U.S.C. 1395m(a)(15)), as 
amended by section 135(b) of the Social Security Act Amendments of 
1994, is amended by adding at the end the following new subparagraphs:
                  ``(D) Application by carriers.--A carrier may develop 
                (and periodically update) a list of items under 
                subparagraph (A) and a list of suppliers under 
                subparagraph (B) in the same manner as the Secretary 
                may develop (and periodically update) such lists.
                  ``(E) Waiver of publication requirement.--A carrier 
                may make an advance determination under subparagraph 
                (C) with respect to an item or supplier on a list 
                developed by the Secretary or the carrier without 
                regard to whether or not the Secretary has promulgated 
                a regulation with respect to the list, except that the 
                carrier may not make such an advance determination with 
                respect to an item or supplier on a list until the 
                expiration of the 30-day period beginning on the date 
                the Secretary or the carrier places the item or 
                supplier on the list.''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect as if included in the enactment of the Social Security Act 
Amendments of 1994.

SEC. 15108. ESTABLISHMENT OF HEALTH CARE ANTI-FRAUD TASK FORCE.

  (a) In General.--Not later than 120 days after the date of the 
enactment of this Act, the Attorney General shall establish (in 
consultation with the Advisory Group described in subsection (c)) 
within the Department of Justice a task force (similar to the Organized 
Crime Drug Enforcement Task Force) to be known as the ``Health Care 
Anti-Fraud Task Force'' (hereafter in this section referred to as the 
``Task Force'') to prosecute health care fraud offenses. Nothing in 
this section may be construed as affecting the powers of the Attorney 
General or any other individual.
  (b) Operations of Task Force.--The Attorney General shall establish 
and operate the Task Force in a manner such that--
          (1) at least one fully staffed operational segment of the 
        Task Force (including at least one Federal representative 
        engaged in Task Force activities on a full-time basis) shall 
        operate in each judicial district of the United States; and
          (2) the Task Force maintains separate accounting of its 
        finances, personnel, case load, and resolution of claims and 
        actions.
  (c) Advisory Group Described.--The Advisory Group described in this 
subsection is a group consisting of the following individuals (or their 
designees):
          (1) The Secretary of Health and Human Services.
          (2) The Secretary of the Treasury.
          (3) The Secretary of Veterans Affairs.
          (4) The Chair of the Board of Governors of the United States 
        Postal Service.

SEC. 15109. STUDY OF ADEQUACY OF PRIVATE QUALITY ASSURANCE PROGRAMS.

  (a) In General.--The Administrator of the Health Care Financing 
Administration (acting through the Director of the Office of Research 
and Development) shall enter into an agreement with a private entity to 
conduct a study during the 5-year period beginning on the date of the 
enactment of this Act of the adequacy of the quality assurance programs 
and consumer protections used by the MedicarePlus program under part C 
of title XVIII of the Social Security Act (as inserted by section 
15002(a)), and shall include in the study an analysis of the 
effectiveness of such programs in protecting plan enrollees against the 
risk of insufficient provision of benefits which may result from 
utilization controls.
  (b) Report.--Not later than 6 months after the conclusion of the 5-
year period described in subsection (a), the Administrator shall submit 
a report to Congress on the study conducted under subsection (a).

SEC. 15110. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH SERVICES.

  (a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) is amended 
by adding at the end the following new paragraph:
  ``(3)(A) Any physician who executes a document described in 
subparagraph (B) with respect to an individual knowing that all of the 
requirements referred to in such subparagraph are not met with respect 
to the individual shall be subject to a civil monetary penalty of not 
more than the greater of--
          ``(i) $5,000, or
          ``(ii) three times the amount of the payments under title 
        XVIII for home health services which are made pursuant to such 
        certification.
  ``(B) A document described in this subparagraph is any document that 
certifies, for purposes of title XVIII, that an individual meets the 
requirements of section 1814(a)(2)(C) or 1835(a)(2)(A) in the case of 
home health services furnished to the individual.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to certifications made on or after the date of the enactment of this 
Act.

                     Subtitle C--Regulatory Relief

              PART 1--PHYSICIAN OWNERSHIP REFERRAL REFORM

SEC. 15201. REPEAL OF PROHIBITIONS BASED ON COMPENSATION ARRANGEMENTS.

  (a) In General.--Section 1877(a)(2) (42 U.S.C. 1395nn(a)(2)) is 
amended by striking ``is--'' and all that follows through ``equity,'' 
and inserting the following: ``is (except as provided in subsection 
(c)) an ownership or investment interest in the entity through 
equity,''.
  (b) Conforming Amendments.--Section 1877 (42 U.S.C. 1395nn) is 
amended as follows:
          (1) In subsection (b)--
                  (A) in the heading, by striking ``to Both Ownership 
                and Compensation Arrangement Prohibitions'' and 
                inserting ``Where Financial Relationship Exists''; and
                  (B) by redesignating paragraph (4) as paragraph (7).
          (2) In subsection (c)--
                  (A) by amending the heading to read as follows: 
                ``Exception for Ownership or Investment Interest in 
                Publicly Traded Securities and Mutual Funds''; and
                  (B) in the matter preceding paragraph (1), by 
                striking ``subsection (a)(2)(A)'' and inserting 
                ``subsection (a)(2)''.
          (3) In subsection (d)--
                  (A) by striking the matter preceding paragraph (1);
                  (B) in paragraph (3), by striking ``paragraph (1)'' 
                and inserting ``paragraph (4)''; and
                  (C) by redesignating paragraphs (1), (2), and (3) as 
                paragraphs (4), (5), and (6), and by transferring and 
                inserting such paragraphs after paragraph (3) of 
                subsection (b).
          (4) By striking subsection (e).
          (5) In subsection (f)(2)--
                  (A) in the matter preceding paragraph (1), by 
                striking ``ownership, investment, and compensation'' 
                and inserting ``ownership and investment'';
                  (B) in paragraph (2), by striking ``subsection 
                (a)(2)(A)'' and all that follows through ``subsection 
                (a)(2)(B)),'' and inserting ``subsection (a)(2),''; and
                  (C) in paragraph (2), by striking ``or who have such 
                a compensation relationship with the entity''.
          (6) In subsection (h)--
                  (A) by striking paragraphs (1), (2), and (3);
                  (B) in paragraph (4)(A), by striking clauses (iv) and 
                (vi);
                  (C) in paragraph (4)(B), by striking ``rules.--'' and 
                all that follows through ``(ii) Faculty'' and inserting 
                ``rules for faculty''; and
                  (D) by adding at the end of paragraph (4) the 
                following new subparagraph:
                  ``(C) Member of a group.--A physician is a `member' 
                of a group if the physician is an owner or a bona fide 
                employee, or both, of the group.''.

SEC. 15202. REVISION OF DESIGNATED HEALTH SERVICES SUBJECT TO 
                    PROHIBITION.

  (a) In General.--Section 1877(h)(6) (42 U.S.C. 1395nn(h)(6)) is 
amended by striking subparagraphs (B) through (K) and inserting the 
following:
                  ``(B) Parenteral and enteral nutrients, equipment, 
                and supplies.
                  ``(C) Magnetic resonance imaging and computerized 
                tomography services.
                  ``(D) Outpatient physical or occupational therapy 
                services.''.
  (b) Conforming Amendments.--
          (1) Section 1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended in 
        the matter preceding subparagraph (A) by striking ``services'' 
        and all that follows through ``supplies)--'' and inserting 
        ``services--''.
          (2) Section 1877(h)(5)(C) (42 U.S.C. 1395nn(h)(5)(C)) is 
        amended--
                  (A) by striking ``, a request by a radiologist for 
                diagnostic radiology services, and a request by a 
                radiation oncologist for radiation therapy,'' and 
                inserting ``and a request by a radiologist for magnetic 
                resonance imaging or for computerized tomography'', and
                  (B) by striking ``radiologist, or radiation 
                oncologist'' and inserting ``or radiologist''.

SEC. 15203. DELAY IN IMPLEMENTATION UNTIL PROMULGATION OF REGULATIONS.

  (a) In General.--Section 13562(b) of OBRA-1993 (42 U.S.C. 1395nn 
note) is amended--
          (1) in paragraph (1), by striking ``paragraph (2)'' and 
        inserting ``paragraphs (2) and (3)''; and
          (2) by adding at the end the following new paragraph:
          ``(3) Promulgation of regulations.--Notwithstanding 
        paragraphs (1) and (2), the amendments made by this section 
        shall not apply to any referrals made before the effective date 
        of final regulations promulgated by the Secretary of Health and 
        Human Services to carry out such amendments.''.
  (b) Effective Date.--The amendments made by subsection (a) shall take 
effect as if included in the enactment of OBRA-1993.

SEC. 15204. EXCEPTIONS TO PROHIBITION.

  (a) Revisions to Exception for In-office Ancillary Services.--
          (1) Repeal of site-of-service requirement.--Section 1877 (42 
        U.S.C. 1395nn) is amended--
                  (A) by amending subparagraph (A) of subsection (b)(2) 
                to read as follows:
                  ``(A) that are furnished personally by the referring 
                physician, personally by a physician who is a member of 
                the same group practice as the referring physician, or 
                personally by individuals who are under the general 
                supervision of the physician or of another physician in 
                the group practice, and'', and
                  (B) by adding at the end of subsection (h) the 
                following new paragraph:
          ``(7) General supervision.--An individual is considered to be 
        under the `general supervision' of a physician if the physician 
        (or group practice of which the physician is a member) is 
        legally responsible for the services performed by the 
        individual and for ensuring that the individual meets licensure 
        and certification requirements, if any, applicable under other 
        provisions of law, regardless of whether or not the physician 
        is physically present when the individual furnishes an item or 
        service.''.
          (2) Clarification of treatment of physician owners of group 
        practice.--Section 1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) is 
        amended by striking ``physician or such group practice'' and 
        inserting ``physician, such group practice, or the physician 
        owners of such group practice''.
          (3) Conforming amendment.--Section 1877(b)(2) (42 U.S.C. 
        1395nn(b)(2)) is amended by amending the heading to read as 
        follows: ``Ancillary services furnished personally or through 
        group practice.--''.
  (b) Clarification of Exception for Services Furnished in a Rural 
Area.--Paragraph (5) of section 1877(b) (42 U.S.C. 1395nn(b)), as 
transferred by section 15201(b)(3)(C), is amended by striking 
``substantially all'' and inserting ``not less than 75 percent''.
  (c) Revision of Exception for Certain Managed Care Arrangements.--
Section 1877(b)(3) (42 U.S.C. 1395nn(b)(3)) is amended--
          (1) in the heading by inserting ``managed care arrangements'' 
        after ``Prepaid plans'';
          (2) in the matter preceding subparagraph (A), by striking 
        ``organization--'' and inserting ``organization, directly or 
        through contractual arrangements with other entities, to 
        individuals enrolled with the organization--'';
          (3) in subparagraph (A), by inserting ``or part C'' after 
        ``section 1876'';
          (4) by striking ``or'' at the end of subparagraph (C);
          (5) by striking the period at the end of subparagraph (D) and 
        inserting a comma; and
          (6) by adding at the end the following new subparagraphs:
                  ``(E) with a contract with a State to provide 
                services under the State plan under title XIX (in 
                accordance with section 1903(m)) or a State MediGrant 
                plan under title XXI; or
                  ``(F) which is a MedicarePlus organization under part 
                C or which provides or arranges for the provision of 
                health care items or services pursuant to a written 
                agreement between the organization and an individual or 
                entity if the written agreement places the individual 
                or entity at substantial financial risk for the cost or 
                utilization of the items or services which the 
                individual or entity is obligated to provide, whether 
                through a withhold, capitation, incentive pool, per 
                diem payment, or any other similar risk arrangement 
                which places the individual or entity at substantial 
                financial risk.''.
  (d) New Exception for Shared Facility Services.--
          (1) In general.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
        amended by section 15201(b)(3)(C), is amended--
                  (A) by redesignating paragraphs (4) through (7) as 
                paragraphs (5) through (8); and
                  (B) by inserting after paragraph (3) the following 
                new paragraph:
          ``(4) Shared facility services.--In the case of a designated 
        health service consisting of a shared facility service of a 
        shared facility--
                  ``(A) that is furnished--
                          ``(i) personally by the referring physician 
                        who is a shared facility physician or 
                        personally by an individual directly employed 
                        or under the general supervision of such a 
                        physician,
                          ``(ii) by a shared facility in a building in 
                        which the referring physician furnishes 
                        substantially all of the services of the 
                        physician that are unrelated to the furnishing 
                        of shared facility services, and
                          ``(iii) to a patient of a shared facility 
                        physician; and
                  ``(B) that is billed by the referring physician or a 
                group practice of which the physician is a member.''.
          (2) Definitions.--Section 1877(h) (42 U.S.C. 1395nn(h)), as 
        amended by section 15201(b)(6), is amended by inserting before 
        paragraph (4) the following new paragraph:
          ``(1) Shared facility related definitions.--
                  ``(A) Shared facility service.--The term `shared 
                facility service' means, with respect to a shared 
                facility, a designated health service furnished by the 
                facility to patients of shared facility physicians.
                  ``(B) Shared facility.--The term `shared facility' 
                means an entity that furnishes shared facility services 
                under a shared facility arrangement.
                  ``(C) Shared facility physician.--The term `shared 
                facility physician' means, with respect to a shared 
                facility, a physician (or a group practice of which the 
                physician is a member) who has a financial relationship 
                under a shared facility arrangement with the facility.
                  ``(D) Shared facility arrangement.--The term `shared 
                facility arrangement' means, with respect to the 
                provision of shared facility services in a building, a 
                financial arrangement--
                          ``(i) which is only between physicians who 
                        are providing services (unrelated to shared 
                        facility services) in the same building,
                          ``(ii) in which the overhead expenses of the 
                        facility are shared, in accordance with methods 
                        previously determined by the physicians in the 
                        arrangement, among the physicians in the 
                        arrangement, and
                          ``(iii) which, in the case of a corporation, 
                        is wholly owned and controlled by shared 
                        facility physicians.''.
  (e) New Exception for Services Furnished in Communities With No 
Alternative Providers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
amended by section 15201(b)(3)(C) and subsection (d)(1), is amended--
          (1) by redesignating paragraphs (5) through (8) as paragraphs 
        (6) through (9); and
          (2) by inserting after paragraph (4) the following new 
        paragraph:
          ``(5) No alternative providers in area.--In the case of a 
        designated health service furnished in any area with respect to 
        which the Secretary determines that individuals residing in the 
        area do not have reasonable access to such a designated health 
        service for which subsection (a)(1) does not apply.''.
  (f) New Exception for Services Furnished in Ambulatory Surgical 
Centers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by section 
15201(b)(3)(C), subsection (d)(1), and subsection (e)(1), is amended--
          (1) by redesignating paragraphs (6) through (9) as paragraphs 
        (7) through (10); and
          (2) by inserting after paragraph (5) the following new 
        paragraph:
          ``(6) Services furnished in ambulatory surgical centers.--In 
        the case of a designated health service furnished in an 
        ambulatory surgical center described in section 
        1832(a)(2)(F)(i).''.
  (g) New Exception for Services Furnished in Renal Dialysis 
Facilities.--Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by 
section 15201(b)(3)(C), subsection (d)(1), subsection (e)(1), and 
subsection (f), is amended--
          (1) by redesignating paragraphs (7) through (10) as 
        paragraphs (8) through (11); and
          (2) by inserting after paragraph (6) the following new 
        paragraph:
          ``(7) Services furnished in renal dialysis facilities.--In 
        the case of a designated health service furnished in a renal 
        dialysis facility under section 1881.''.
  (h) New Exception for Services Furnished in a Hospice.--Section 
1877(b) (42 U.S.C. 1395nn(b)), as amended by section 15201(b)(3)(C), 
subsection (d)(1), subsection (e)(1), subsection (f), and subsection 
(g), is amended--
          (1) by redesignating paragraphs (8) through (11) as 
        paragraphs (9) through (12); and
          (2) by inserting after paragraph (7) the following new 
        paragraph:
          ``(8) Services furnished by a hospice program.--In the case 
        of a designated health service furnished by a hospice program 
        under section 1861(dd)(2).''.
  (i) New Exception for Services Furnished in a Comprehensive 
Outpatient Rehabilitation Facility.--Section 1877(b) (42 U.S.C. 
1395nn(b)), as amended by section 15201(b)(3)(C), subsection (d)(1), 
subsection (e)(1), subsection (f), subsection (g), and subsection (h), 
is amended--
          (1) by redesignating paragraphs (9) through (12) as 
        paragraphs (10) through (13); and
          (2) by inserting after paragraph (8) the following new 
        paragraph:
          ``(9) Services furnished in a comprehensive outpatient 
        rehabilitation facility.--In the case of a designated health 
        service furnished in a comprehensive outpatient rehabilitation 
        facility (as defined in section 1861(cc)(2)).''.
  (i) Definition of Referral.--Section 1877(h)(5)(A) (42 U.S.C. 
1395nn(h)(5)(A)) is amended--
          (1) by striking ``an item or service'' and inserting ``a 
        designated health service'', and
          (2) by striking ``the item or service'' and inserting ``the 
        designated health service''.

SEC. 15205. REPEAL OF REPORTING REQUIREMENTS.

  Section 1877 (42 U.S.C. 1395nn) is amended--
          (1) by striking subsection (f); and
          (2) by striking subsection (g)(5).

SEC. 15206. PREEMPTION OF STATE LAW.

  Section 1877 (42 U.S.C. 1395nn) is amended by adding at the end the 
following new subsection:
  ``(i) Preemption of State Law.--This section preempts State law to 
the extent State law is inconsistent with this section.''.

SEC. 15207. EFFECTIVE DATE.

  Except as provided in section 15203(b), the amendments made by this 
part shall apply to referrals made on or after August 14, 1995, 
regardless of whether or not regulations are promulgated to carry out 
such amendments.

                PART 2--OTHER MEDICARE REGULATORY RELIEF

SEC. 15211. REPEAL OF MEDICARE AND MEDICAID COVERAGE DATA BANK.

  (a) In General.--Section 1144 (42 U.S.C. 1320b-14) is repealed.
  (b) Conforming Amendments.--
          (1) Medicare.--Section 1862(b)(5) (42 U.S.C. 1395y(b)(5)) is 
        amended--
                  (A) in subparagraph (B), by striking ``under--'' and 
                all that follows through the end and inserting 
                ``subparagraph (A) for purposes of carrying out this 
                subsection.'', and
                  (B) in subparagraph (C)(i), by striking 
                ``subparagraph (B)(i)'' and inserting ``subparagraph 
                (B)''.
          (2) Medicaid.--Section 1902(a)(25)(A)(i) (42 U.S.C. 
        1396a(a)(25)(A)(i)) is amended by striking ``including the use 
        of'' and all that follows through ``any additional measures''.
          (3) ERISA.--Section 101(f) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1021(f)) is repealed.
          (4) Data matches.--Section 552a(a)(8)(B) of title 5, United 
        States Code, is amended--
                  (A) by adding ``; or'' at the end of clause (v),
                  (B) by striking ``or'' at the end of clause (vi), and
                  (C) by striking clause (vii).

SEC. 15212. CLARIFICATION OF LEVEL OF INTENT REQUIRED FOR IMPOSITION OF 
                    SANCTIONS.

  (a) Clarification of Level of Knowledge Required for Imposition of 
Civil Monetary Penalties.--
          (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is 
        amended--
          (1) in paragraphs (1) and (2), by inserting ``knowingly'' 
        before ``presents'' each place it appears; and
          (2) in paragraph (3), by striking ``gives'' and inserting 
        ``knowingly gives or causes to be given''.
          (2) Definition of standard.--Section 1128A(i) (42 U.S.C. 
        1320a-7a(i)) is amended by adding at the end the following new 
        paragraph:
          ``(6) The term `should know' means that a person, with 
        respect to information--
                  ``(A) acts in deliberate ignorance of the truth or 
                falsity of the information; or
                  ``(B) acts in reckless disregard of the truth or 
                falsity of the information,
        and no proof of specific intent to defraud is required.''.
  (b) Clarification of Effect and Application of Safe Harbor 
Exceptions.--For purposes of section 1128B(b)(3) of the Social Security 
Act, the specification of any payment practice in regulations 
promulgated pursuant to section 14(a) of the Medicare and Medicaid 
Program and Patient Protection Act of 1987 is--
          (1) solely for the purpose of adding additional exceptions to 
        the types of conduct which are not subject to an anti-kickback 
        penalty under such section and not for the purpose of limiting 
        the scope of such exceptions; and
          (2) for the purpose of prescribing criteria for qualifying 
        for such an exception notwithstanding the intent of the party 
        involved.
  (c) Limiting Imposition of Anti-kickback Penalties to Actions With 
Significant Purpose to Induce Referrals.--Section 1128B(b)(2) (42 
U.S.C. 1320a-7b(b)(2)) is amended in the matter preceding subparagraph 
(A) by striking ``to induce'' and inserting ``for the significant 
purpose of inducing''.
  (d) Effective Date.--The amendments made by this section shall apply 
to acts or omissions occurring on or after January 1, 1996.

SEC. 15213. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR MANAGED 
                    CARE ARRANGEMENTS.

  (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is 
amended--
          (1) by striking ``and'' at the end of subparagraph (D);
          (2) by striking the period at the end of subparagraph (E) and 
        inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
          ``(F) any remuneration between an organization and an 
        individual or entity providing services pursuant to a written 
        agreement between the organization and the individual or entity 
        if the organization is a MedicarePlus organization under part C 
        of title XVIII or if the written agreement places the 
        individual or entity at substantial financial risk for the cost 
        or utilization of the items or services which the individual or 
        entity is obligated to provide, whether through a withhold, 
        capitation, incentive pool, per diem payment, or any other 
        similar risk arrangement which places the individual or entity 
        at substantial financial risk.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to acts or omissions occurring on or after January 1, 1996.

SEC. 15214. SOLICITATION AND PUBLICATION OF MODIFICATIONS TO EXISTING 
                    SAFE HARBORS AND NEW SAFE HARBORS.

  (a) In General.--
          (1) Solicitations.--Not later than January 1, 1996, and not 
        less than annually thereafter, the Secretary of Health and 
        Human Services shall publish a notice in the Federal Register 
        soliciting proposals, which will be accepted during a 60-day 
        period, for--
                  (A) modifications to existing safe harbors issued 
                pursuant to section 14(a) of the Medicare and Medicaid 
                Patient and Program Protection Act of 1987;
                  (B) additional safe harbors specifying payment 
                practices that shall not be treated as a criminal 
                offense under section 1128B(b) of the Social Security 
                Act and shall not serve as the basis for an exclusion 
                under section 1128(b)(7) of such Act; and
                  (C) special fraud alerts to be issued pursuant to 
                section 15101(c).
          (2) Publication of proposed modifications and proposed 
        additional safe harbors.--Not later than 120 days after 
        receiving the proposals described in subparagraphs (A) and (B) 
        of paragraph (1), the Secretary, after considering such 
        proposals in consultation with the Attorney General, shall 
        publish in the Federal Register proposed modifications to 
        existing safe harbors and proposed additional safe harbors, if 
        appropriate, with a 60-day comment period. After considering 
        any public comments received during this period, the Secretary 
        shall issue final rules modifying the existing safe harbors and 
        establishing new safe harbors, as appropriate.
          (3) Report.--The Inspector General shall, in an annual report 
        to Congress or as part of the year-end semiannual report 
        required by section 5 of the Inspector General Act of 1978, 
        describe the proposals received under subparagraphs (A) and (B) 
        of paragraph (1) and explain which proposals were included in 
        the publication described in paragraph (2), which proposals 
        were not included in that publication, and the reasons for the 
        rejection of the proposals that were not included.
  (b) Criteria for Modifying and Establishing Safe Harbors.--In 
modifying and establishing safe harbors under subsection (a)(2), the 
Secretary may consider the extent to which providing a safe harbor for 
the specified payment practice may result in any of the following:
          (1) An increase or decrease in access to health care 
        services.
          (2) An increase or decrease in the quality of health care 
        services.
          (3) An increase or decrease in patient freedom of choice 
        among health care providers.
          (4) An increase or decrease in competition among health care 
        providers.
          (5) An increase or decrease in the cost to health care 
        programs of the Federal Government.
          (6) An increase or decrease in the potential overutilization 
        of health care services.
          (8) Any other factors the Secretary deems appropriate in the 
        interest of preventing fraud and abuse in health care programs 
        of the Federal Government.

SEC. 15215. ISSUANCE OF ADVISORY OPINIONS UNDER TITLE XI.

  (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as amended by 
section 15104(a), is amended by inserting after section 1129 the 
following new section:
                          ``advisory opinions
  ``Sec. 1130. (a) Issuance of Advisory Opinions.--The Secretary shall 
issue written advisory opinions as provided in this section.
  ``(b) Matters Subject to Advisory Opinions.--The Secretary shall 
issue advisory opinions as to the following matters:
          ``(1) What constitutes prohibited remuneration within the 
        meaning of section 1128B(b).
          ``(2) Whether an arrangement or proposed arrangement 
        satisfies the criteria set forth in section 1128B(b)(3) for 
        activities which do not result in prohibited remuneration.
          ``(3) Whether an arrangement or proposed arrangement 
        satisfies the criteria which the Secretary has established, or 
        shall establish by regulation for activities which do not 
        result in prohibited remuneration.
          ``(4) What constitutes an inducement to reduce or limit 
        services to individuals entitled to benefits under title XVIII 
        or title XIX or title XXI within the meaning of section 
        1128B(b).
          ``(5) Whether any activity or proposed activity constitutes 
        grounds for the imposition of a sanction under section 1128, 
        1128A, or 1128B.
  ``(c) Matters Not Subject to Advisory Opinions.--Such advisory 
opinions shall not address the following matters:
          ``(1) Whether the fair market value shall be, or was paid or 
        received for any goods, services or property.
          ``(2) Whether an individual is a bona fide employee within 
        the requirements of section 3121(d)(2) of the Internal Revenue 
        Code of 1986.
  ``(d) Effect of Advisory Opinions.--
          ``(1) Binding as to secretary and parties involved.--Each 
        advisory opinion issued by the Secretary shall be binding as to 
        the Secretary and the party or parties requesting the opinion.
          ``(2) Failure to seek opinion.--The failure of a party to 
        seek an advisory opinion may not be introduced into evidence to 
        prove that the party intended to violate the provisions of 
        sections 1128, 1128A, or 1128B.
  ``(e) Regulations.--
          ``(1) In general.--Not later than 180 days after the date of 
        the enactment of this section, the Secretary shall issue 
        regulations to carry out this section. Such regulations shall 
        provide for--
                  ``(A) the procedure to be followed by a party 
                applying for an advisory opinion;
                  ``(B) the procedure to be followed by the Secretary 
                in responding to a request for an advisory opinion;
                  ``(C) the interval in which the Secretary shall 
                respond;
                  ``(D) the reasonable fee to be charged to the party 
                requesting an advisory opinion; and
                  ``(E) the manner in which advisory opinions will be 
                made available to the public.
          ``(2) Specific contents.--Under the regulations promulgated 
        pursuant to paragraph (1)--
                  ``(A) the Secretary shall be required to respond to a 
                party requesting an advisory opinion by not later than 
                30 days after the request is received; and
                  ``(B) the fee charged to the party requesting an 
                advisory opinion shall be equal to the costs incurred 
                by the Secretary in responding to the request.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to requests for advisory opinions made on or after January 1, 1996.

SEC. 15216. PRIOR NOTICE OF CHANGES IN BILLING AND CLAIMS PROCESSING 
                    REQUIREMENTS FOR PHYSICIANS' SERVICES.

  Except as may be specifically provided by Congress, the Secretary of 
Health and Human Services may not implement any change in the 
requirements imposed on the billing and processing of claims for 
payment for physicians' services under part B of the medicare program 
unless the Secretary notifies the individuals furnishing such services 
of the change not later than 120 days before the effective date of the 
change.

               PART 3--PROMOTING PHYSICIAN SELF-POLICING

SEC. 15221. EXEMPTION FROM ANTITRUST LAWS FOR CERTAIN ACTIVITIES OF 
                    MEDICAL SELF-REGULATORY ENTITIES.

  (a) Exemption Described.--An activity relating to the provision of 
health care services shall be exempt from the antitrust laws, and any 
State law similar to the antitrust laws, if the activity is within the 
safe harbor described in subsection (b).
  (b) Safe Harbor for Activities of Medical Self-Regulatory Entities.--
          (1) In General.--Subject to paragraph (2), any activity of a 
        medical self-regulatory entity relating to standard setting or 
        standard enforcement activities that are designed to promote 
        the quality of health care services provided to patients.
          (2) Exception.--No activity of a medical self-regulatory 
        entity may be deemed to fall under the safe harbor established 
        under paragraph (1) if the activity--
                  (A) is conducted for purposes of financial gain, or
                  (B) interferes with the provision of health care 
                services by any health care provider who is not a 
                member of the specific profession which is subject to 
                the authority of the medical self-regulatory entity.
  (c) Definitions.--For purposes of this section:
          (1) Antitrust Laws.--The term ``antitrust laws'' has the 
        meaning given it in subsection (a) of the first section of the 
        Clayton Act (15 U.S.C. 12(a)), except that such term includes 
        section 5 of the Federal Trade Commission Act (15 U.S.C. 45) to 
        the extent such section applies to unfair methods of 
        competition.
          (2) Health benefit plan.--The term ``health benefit plan'' 
        means--
                  (A) a hospital or medical expense incurred policy or 
                certificate,
                  (B) a hospital or medical service plan contract,
                  (C) a health maintenance subscriber contract,
                  (D) a multiple employer welfare arrangement or 
                employee benefit plan (as defined under the Employee 
                Retirement Income Security Act of 1974), or
                  (E) a MedicarePlus product (offered under part C of 
                title XVIII of the Social Security Act),
        that provides benefits with respect to health care services.
          (3) Health care service.--The term ``health care service'' 
        means any service for which payment may be made under a health 
        benefit plan including services related to the delivery or 
        administration of such service.
          (4) Medical self-regulatory entity.--The term ``medical self-
        regulatory entity'' means a medical society or association, a 
        specialty board, a recognized accrediting agency, or a hospital 
        medical staff, and includes the members, officers, employees, 
        consultants, and volunteers or committees of such an entity.
          (5) Health care provider.--The term ``health care provider'' 
        means any individual or entity that is engaged in the delivery 
        of health care services in a State and that is required by 
        State law or regulation to be licensed or certified by the 
        State to engage in the delivery of such services in the State.
          (6) Standard setting or standard enforcement activities.--The 
        term ``standard setting or standard enforcement activities'' 
        means--
                  (A) accreditation of health care practitioners, 
                health care providers, medical education institutions, 
                or medical education programs,
                  (B) technology assessment and risk management 
                activities,
                  (C) the development and implementation of practice 
                guidelines or practice parameters, or
                  (D) official peer review proceedings undertaken by a 
                hospital medical staff (or committee thereof) or a 
                medical society or association for purposes of 
                evaluating the professional conduct or quality of 
                health care provided by a medical professional.

                  Subtitle D--Medical Liability Reform

                       PART 1--GENERAL PROVISIONS

SEC. 15301. FEDERAL REFORM OF HEALTH CARE LIABILITY ACTIONS.

  (a) Applicability.--This subtitle shall apply with respect to any 
health care liability action brought in any State or Federal court, 
except that this subtitle shall not apply to an action for damages 
arising from a vaccine-related injury or death to the extent that title 
XXI of the Public Health Service Act applies to the action.
  (b) Preemption.--This subtitle shall preempt any State law to the 
extent such law is inconsistent with the limitations contained in this 
subtitle. This subtitle shall not preempt any State law that provides 
for defenses or places limitations on a person's liability in addition 
to those contained in this subtitle or otherwise imposes greater 
restrictions than those provided in this subtitle.
  (c) Effect on Sovereign Immunity and Choice of Law or Venue.--Nothing 
in subsection (b) shall be construed to--
          (1) waive or affect any defense of sovereign immunity 
        asserted by any State under any provision of law;
          (2) waive or affect any defense of sovereign immunity 
        asserted by the United States;
          (3) affect the applicability of any provision of the Foreign 
        Sovereign Immunities Act of 1976;
          (4) preempt State choice-of-law rules with respect to claims 
        brought by a foreign nation or a citizen of a foreign nation; 
        or
          (5) affect the right of any court to transfer venue or to 
        apply the law of a foreign nation or to dismiss a claim of a 
        foreign nation or of a citizen of a foreign nation on the 
        ground of inconvenient forum.
  (d) Amount in Controversy.--In an action to which this subtitle 
applies and which is brought under section 1332 of title 28, United 
States Code, the amount of noneconomic damages or punitive damages, and 
attorneys' fees or costs, shall not be included in determining whether 
the matter in controversy exceeds the sum or value of $50,000.
  (e) Federal Court Jurisdiction Not Established on Federal Question 
Grounds.--Nothing in this subtitle shall be construed to establish any 
jurisdiction in the district courts of the United States over health 
care liability actions on the basis of section 1331 or 1337 of title 
28, United States Code.

SEC. 15302. DEFINITIONS.

  As used in this subtitle:
          (1) Actual damages.--The term ``actual damages'' means 
        damages awarded to pay for economic loss.
          (2) Alternative dispute resolution system; adr.--The term 
        ``alternative dispute resolution system'' or ``ADR'' means a 
        system established under Federal or State law that provides for 
        the resolution of health care liability claims in a manner 
        other than through health care liability actions.
          (3) Claimant.--The term ``claimant'' means any person who 
        brings a health care liability action and any person on whose 
        behalf such an action is brought. If such action is brought 
        through or on behalf of an estate, the term includes the 
        claimant's decedent. If such action is brought through or on 
        behalf of a minor or incompetent, the term includes the 
        claimant's legal guardian.
          (4) Clear and convincing evidence.--The term ``clear and 
        convincing evidence'' is that measure or degree of proof that 
        will produce in the mind of the trier of fact a firm belief or 
        conviction as to the truth of the allegations sought to be 
        established, except that such measure or degree of proof is 
        more than that required under preponderance of the evidence but 
        less than that required for proof beyond a reasonable doubt.
          (5) Collateral source payments.--The term ``collateral source 
        payments'' means any amount paid or reasonably likely to be 
        paid in the future to or on behalf of a claimant, or any 
        service, product, or other benefit provided or reasonably 
        likely to be provided in the future to or on behalf of a 
        claimant, as a result of an injury or wrongful death, pursuant 
        to--
                  (A) any State or Federal health, sickness, income-
                disability, accident or workers' compensation Act;
                  (B) any health, sickness, income-disability, or 
                accident insurance that provides health benefits or 
                income-disability coverage;
                  (C) any contract or agreement of any group, 
                organization, partnership, or corporation to provide, 
                pay for, or reimburse the cost of medical, hospital, 
                dental, or income disability benefits; and
                  (D) any other publicly or privately funded program.
          (6) Economic loss.--The term ``economic loss'' means any 
        pecuniary loss resulting from harm (including the loss of 
        earnings, medical expense loss, replacement services loss, loss 
        due to death, and burial costs), to the extent recovery for 
        such loss is allowed under applicable State law.
          (7) Harm.--The term ``harm'' means any legally cognizable 
        wrong or injury for which punitive damages may be imposed.
          (8) Health care liability action.--The term ``health care 
        liability action'' means a civil action brought in a State or 
        Federal court against a health care provider, an entity which 
        is obligated to provide or pay for health benefits under any 
        health plan (including any person or entity acting under a 
        contract or arrangement to provide or administer any health 
        benefit), or the manufacturer, distributor, supplier, marketer, 
        promoter, or seller of a medical product, in which the claimant 
        alleges a claim (including third party claims, cross claims, 
        counter claims, or distribution claims) based upon the 
        provision of (or the failure to provide or pay for) health care 
        services or the use of a medical product, regardless of the 
        theory of liability on which the claim is based or the number 
        of plaintiffs, or defendants or causes of action.
          (9) Health care liability claim.--The term ``health care 
        liability claim'' means a claim in which the claimant alleges 
        that injury was caused by the provision of (or the failure to 
        provide) health care services.
          (10) Health care provider.--The term ``health care provider'' 
        means any individual, organization, or institution that is 
        engaged in the delivery of health care services in a State and 
        that is required by the laws or regulations of the State to be 
        licensed or certified by the State to engage in the delivery of 
        such services in the State.
          (11) Noneconomic damages.--The term ``noneconomic damages'' 
        means damages paid to an individual for pain and suffering, 
        inconvenience, emotional distress, mental anguish, loss of 
        consortium, injury to reputation, humiliation, and other 
        nonpecuniary losses.
          (12) Person.--The term ``person'' means any individual, 
        corporation, company, association, firm, partnership, society, 
        joint stock company, or any other entity, including any 
        governmental entity.
          (13) Punitive damages.--The term ``punitive damages'' means 
        damages awarded against any person not to compensate for actual 
        injury suffered, but to punish or deter such person or others 
        from engaging in similar behavior in the future.
          (14) State.--The term ``State'' means each of the several 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Virgin Islands, Guam, American Samoa, the Northern 
        Mariana Islands, the Trust Territories of the Pacific Islands, 
        and any other territory or possession of the United States.

SEC. 15303. EFFECTIVE DATE.

  This subtitle will apply to any health care liability action brought 
in a Federal or State court and to any health care liability claim 
subject to an alternative dispute resolution system, that is initiated 
on or after the date of enactment of this subtitle, except that any 
health care liability claim or action arising from an injury occurring 
prior to the date of enactment of this subtitle shall be governed by 
the applicable statute of limitations provisions in effect at the time 
the injury occurred.

      PART 2--UNIFORM STANDARDS FOR HEALTH CARE LIABILITY ACTIONS

SEC. 15311. STATUTE OF LIMITATIONS.

  A health care liability action may not be brought after the 
expiration of the 2-year period that begins on the date on which the 
alleged injury that is the subject of the action was discovered or 
should reasonably have been discovered, but in no case after the 
expiration of the 5-year period that begins on the date the alleged 
injury occurred.

SEC. 15312. CALCULATION AND PAYMENT OF DAMAGES.

  (a) Treatment of Noneconomic Damages.--
          (1) Limitation on noneconomic damages.--The total amount of 
        noneconomic damages that may be awarded to a claimant for 
        losses resulting from the injury which is the subject of a 
        health care liability action may not exceed $250,000, 
        regardless of the number of parties against whom the action is 
        brought or the number of actions brought with respect to the 
        injury.
          (2) Joint and several liability.--In any health care 
        liability action brought in State or Federal court, a defendant 
        shall be liable only for the amount of noneconomic damages 
        attributable to such defendant in direct proportion to such 
        defendant's share of fault or responsibility for the claimant's 
        actual damages, as determined by the trier of fact. In all such 
        cases, the liability of a defendant for noneconomic damages 
        shall be several and not joint.
  (b) Treatment of Punitive Damages.--
          (1) General rule.--Punitive damages may, to the extent 
        permitted by applicable State law, be awarded in any health 
        care liability action for harm in any Federal or State court 
        against a defendant if the claimant establishes by clear and 
        convincing evidence that the harm suffered was result of 
        conduct--
                  (A) specifically intended to cause harm, or
                  (B) conduct manifesting a conscious, flagrant 
                indifference to the rights or safety of others.
          (2) Proportional awards.--The amount of punitive damages that 
        may be awarded in any health care liability action subject to 
        this subtitle shall not exceed 3 times the amount of damages 
        awarded to the claimant for economic loss, or $250,000, 
        whichever is greater. This section shall be applied by the 
        court and shall not be disclosed to the jury.
  (c) Applicability.--This section shall apply to any health care 
liability action brought in any Federal or State court on any theory 
where punitive damages are sought. This section does not create a cause 
of action for punitive damages. This section does not preempt or 
supersede any State or Federal law to the extent that such law would 
further limit the award of punitive damages.
  (d) Bifurcation.--At the request of any party, the trier of fact 
shall consider in a separate proceeding whether punitive damages are to 
be awarded and the amount of such award. If a separate proceeding is 
requested, evidence relevant only to the claim of punitive damages, as 
determined by applicable State law, shall be inadmissible in any 
proceeding to determine whether actual damages are to be awarded.
  (e) Drugs and Devices.--
          (1)(A) Punitive damages shall not be awarded against a 
        manufacturer or product seller of a drug (as defined in section 
        201(g)(1) of the Federal Food, Drug, and Cosmetic Act (21 
        U.S.C. 321(g)(1)) or medical device (as defined in section 
        201(h) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
        321(h)) which caused the claimant's harm where--
                  (i) such drug or device was subject to premarket 
                approval by the Food and Drug Administration with 
                respect to the safety of the formulation or performance 
                of the aspect of such drug or device which caused the 
                claimant's harm or the adequacy of the packaging or 
                labeling of such drug or device, and such drug was 
                approved by the Food and Drug Administration; or
                  (ii) the drug is generally recognized as safe and 
                effective pursuant to conditions established by the 
                Food and Drug Administration and applicable 
                regulations, including packaging and labeling 
                regulations.
          (B) Subparagraph (A) shall not apply in any case in which the 
        defendant, before or after premarket approval of a drug or 
        device--
                  (i) intentionally and wrongfully withheld from or 
                misrepresented to the Food and Drug Administration 
                information concerning such drug or device required to 
                be submitted under the Federal Food, Drug, and Cosmetic 
                Act (21 U.S.C. 301 et seq.) or section 351 of the 
                Public Health Service Act (42 U.S.C. 262) that is 
                material and relevant to the harm suffered by the 
                claimant, or
                  (ii) made an illegal payment to an official or 
                employee of the Food and Drug Administration for the 
                purpose of securing or maintaining approval of such 
                drug or device.
          (2) Packaging.--In a health care liability action for harm 
        which is alleged to relate to the adequacy of the packaging (or 
        labeling relating to such packaging) of a drug which is 
        required to have tamper-resistant packaging under regulations 
        of the Secretary of Health and Human Services (including 
        labeling regulations related to such packaging), the 
        manufacturer of the drug shall not be held liable for punitive 
        damages unless the drug is found by the court by clear and 
        convincing evidence to be substantially out of compliance with 
        such regulations.
  (f) Periodic Payments for Future Losses.--
          (1) General rule.--In any health care liability action in 
        which the damages awarded for future economic and noneconomic 
        loss exceeds $50,000, a person shall not be required to pay 
        such damages in a single, lump-sum payment, but shall be 
        permitted to make such payments periodically based on when the 
        damages are found likely to occur, as such payments are 
        determined by the court.
          (2) Finality of judgment.--The judgment of the court awarding 
        periodic payments under this subsection may not, in the absence 
        of fraud, be reopened at any time to contest, amend, or modify 
        the schedule or amount of the payments.
          (3) Lump-sum settlements.--This subsection shall not be 
        construed to preclude a settlement providing for a single, 
        lump-sum payment.
  (g) Treatment of Collateral Source Payments.--
          (1) Introduction into evidence.--In any health care liability 
        action, any defendant may introduce evidence of collateral 
        source payments. If any defendant elects to introduce such 
        evidence, the claimant may introduce evidence of any amount 
        paid or contributed or reasonably likely to be paid or 
        contributed in the future by or on behalf of the claimant to 
        secure the right to such collateral source payments.
          (2) No subrogation.--No provider of collateral source 
        payments shall recover any amount against the claimant or 
        receive any lien or credit against the claimant's recovery or 
        be equitably or legally subrogated the right of the claimant in 
        a health care liability action. This subsection shall apply to 
        an action that is settled as well as an action that is resolved 
        by a fact finder.

SEC. 15313. ALTERNATIVE DISPUTE RESOLUTION.

  Any ADR used to resolve a health care liability action or claim shall 
contain provisions relating to statute of limitations, non-economic 
damages, joint and several liability, punitive damages, collateral 
source rule, and periodic payments which are identical to the 
provisions relating to such matters in this subtitle.

     Subtitle E--Teaching Hospitals and Graduate Medical Education

  PART 1--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST FUND

SEC. 15401. ESTABLISHMENT OF FUND; PAYMENTS TO TEACHING HOSPITALS.

  The Social Security Act (42 U.S.C. 300 et seq.) is amended by adding 
after title XXI the following title:

 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND

                    ``Part A--Establishment of Fund

``SEC. 2201. ESTABLISHMENT OF FUND.

  ``(a) In General.--There is established in the Treasury of the United 
States a fund to be known as the Teaching Hospital and Graduate Medical 
Education Trust Fund (in this title referred to as the `Fund'), 
consisting of amounts appropriated to the Fund in subsection (d) and 
subsection (e)(3), amounts transferred to the Fund under section 
1886(j), and such gifts and bequests as may be deposited in the Fund 
pursuant to subsection (f). Amounts in the Fund are available until 
expended.
  ``(b) Expenditures From Fund.--Amounts in the Fund are available to 
the Secretary for making payments under section 2211.
  ``(c) Accounts in Fund.--There are established within the Fund the 
following accounts:
          ``(1) The Indirect-Costs Medical Education Account.
          ``(2) The Medicare Direct-Costs Medical Education Account.
          ``(3) The General Direct-Costs Medical Education Account.
  ``(d) General Transfers to Fund.--
          ``(1) In general.--For fiscal year 1997 and each subsequent 
        fiscal year, there are appropriated to the Fund (effective on 
        the applicable date under paragraph (2)), out of any money in 
        the Treasury not otherwise appropriated, the following amounts 
        (as applicable to the fiscal year involved):
                  ``(A) For fiscal year 1997, $400,000,000.
                  ``(B) For fiscal year 1998, $600,000,000.
                  ``(C) For fiscal year 1999, $2,000,000,000.
                  ``(D) For fiscal year 2000, $3,000,000,000.
                  ``(E) For fiscal year 2001, $4,000,000,000.
                  ``(F) For fiscal year 2002, $5,800,000,000.
                  ``(G) For fiscal year 2003 and each subsequent fiscal 
                year, the greater of the amount appropriated for the 
                preceding fiscal year or an amount equal to the product 
                of--
                          ``(i) the amount appropriated for the 
                        preceding fiscal year; and
                          ``(ii) 1 plus the percentage increase in the 
                        nominal gross domestic product for the one-year 
                        period ending upon July 1 of such preceding 
                        fiscal year.
          ``(2) Effective date for annual appropriation.--For purposes 
        of paragraph (1) (and for purposes of section 2221(a)(1), and 
        subsections (b)(1)(A) and (c)(1)(A) of section 2231)), the 
        applicable date for a fiscal year is the first day of the 
        fiscal year, exclusive of Saturdays, Sundays, and Federal 
        holidays.
          ``(3) Allocation among certain accounts.--Of the amount 
        appropriated in paragraph (1) for a fiscal year--
                  ``(A) there shall be allocated to the Indirect-Costs 
                Medical Education Account the percentage determined 
                under paragraph (4)(B); and
                  ``(B) there shall be allocated to the General Direct-
                Costs Medical Education Account the percentage 
                determined under paragraph (4)(C).
          ``(4) Determination of percentages.--The Secretary of Health 
        and Human Services, acting through the Administrator of the 
        Health Care Financing Administration, shall determine the 
        following:
                  ``(A) The total amount of payments that were made 
                under subsections (d)(5)(B) and (h) of section 1886 for 
                fiscal year 1994.
                  ``(B) The percentage of such total that was 
                constituted by payments under subsection (d)(5)(B) of 
                such section.
                  ``(C) The percentage of such total that was 
                constituted by payments under subsection (h) of such 
                section.
  ``(e) Investment.--
          ``(1) In general.--The Secretary of the Treasury shall invest 
        such amounts of the Fund as such Secretary determines are not 
        required to meet current withdrawals from the Fund. Such 
        investments may be made only in interest-bearing obligations of 
        the United States. For such purpose, such obligations may be 
        acquired on original issue at the issue price, or by purchase 
        of outstanding obligations at the market price.
          ``(2) Sale of obligations.--Any obligation acquired by the 
        Fund may be sold by the Secretary of the Treasury at the market 
        price.
          ``(3) Availability of income.--Any interest derived from 
        obligations acquired by the Fund, and proceeds from any sale or 
        redemption of such obligations, are hereby appropriated to the 
        Fund.
  ``(f) Acceptance of Gifts and Bequests.--The Fund may accept on 
behalf of the United States money gifts and bequests made 
unconditionally to the Fund for the benefit of the Fund or any activity 
financed through the Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

``SEC. 2211. FORMULA PAYMENTS TO TEACHING HOSPITALS.

  ``(a) In General.--Subject to subsection (d), in the case of each 
teaching hospital that in accordance with subsection (b) submits to the 
Secretary a payment document for fiscal year 1997 or any subsequent 
fiscal year, the Secretary shall make payments for the year to the 
teaching hospital for the costs of operating approved medical residency 
training programs. Such payments shall be made from the Fund, and the 
total of the payments to the hospital for the fiscal year shall equal 
the sum of the following:
          ``(1) An amount determined under section 2221 (relating to 
        the indirect costs of graduate medical education).
          ``(2) An amount determined under section 2231 (relating to 
        the direct costs of graduate medical education).
  ``(b) Payment Document.--For purposes of subsection (a), a payment 
document is a document containing such information as may be necessary 
for the Secretary to make payments under such subsection to a teaching 
hospital for a fiscal year. The document is submitted in accordance 
with this subsection if the document is submitted not later than the 
date specified by the Secretary, and the document is in such form and 
is made in such manner as the Secretary may require. The Secretary may 
require that information under this subsection be submitted to the 
Secretary in periodic reports.
  ``(c) Administrator of Programs.--This part, and the subsequent parts 
of this title, shall be carried out by the Secretary acting through the 
Administrator of the Health Care Financing Administration.
  ``(d) Special Rules.--
          ``(1) Authority regarding payments to consortia of 
        providers.--In the case of payments under subsection (a) that 
        are determined under section 2231:
                  ``(A) The requirement under such subsection to make 
                the payments to teaching hospitals is subject to the 
                authority of the Secretary under section 2233(a) to 
                make payments to qualifying consortia.
                  ``(B) If the Secretary authorizes such a consortium 
                for purposes of section 2233(a), subsections (a) and 
                (b) of this section apply to the consortium to the same 
                extent and in the same manner as the subsections apply 
                to teaching hospitals.
          ``(2) Certain hospitals.--Paragraph (1) of subsection (a) is 
        subject to sections 2222 and 2223 of subpart 2. Paragraph (2) 
        of subsection (a) is subject to sections 2232 through 2234 of 
        subpart 3.
  ``(e) Approved Medical Residency Training Program.--For purposes of 
this title, the term `approved medical residency training program' has 
the meaning given such term in section 1886(h)(5)(A).

  ``Subpart 2--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

``SEC. 2221. DETERMINATION OF AMOUNT RELATING TO INDIRECT COSTS.

  ``(a) In General.--For purposes of section 2211(a)(1), the amount 
determined under this section for a teaching hospital for a fiscal year 
is the product of--
          ``(1) the amount in the Indirect-Costs Medical Education 
        Account on the applicable date under section 2201(d) (once the 
        appropriation under such section is made); and
          ``(2) the percentage determined for the hospital under 
        subsection (b).
  ``(b) Hospital-Specific Percentage.--
          ``(1) In general.--For purposes of subsection (a)(2), the 
        percentage determined under this subsection for a teaching 
        hospital is the mean average of the respective percentages 
        determined under paragraph (3) for each fiscal year of the 
        applicable period (as defined in paragraph (2)), adjusted by 
        the Secretary (upward or downward, as the case may be) on a pro 
        rata basis to the extent necessary to ensure that the sum of 
        the percentages determined under this paragraph for all 
        teaching hospitals is equal to 100 percent. The preceding 
        sentence is subject to sections 2222 and 2223.
          ``(2) Applicable period regarding relevant data; fiscal years 
        1992 through 1994.--For purposes of this part, the term 
        `applicable period' means the period beginning on the first day 
        of fiscal year 1992 and continuing through the end of fiscal 
        year 1994.
          ``(3) Respective determinations for fiscal years of 
        applicable period.--For purposes of paragraph (1), the 
        percentage determined under this paragraph for a teaching 
        hospital for a fiscal year of the applicable period is the 
        percentage constituted by the ratio of--
                  ``(A) the total amount of payments received by the 
                hospital under section 1886(d)(5)(B) for discharges 
                occurring during the fiscal year involved; to
                  ``(B) the sum of the respective amounts determined 
                under subparagraph (A) for the fiscal year for all 
                teaching hospitals.
  ``(c) Availability of Data.--If a teaching hospital received the 
payments specified in subsection (b)(3)(A) during the applicable period 
but a complete set of the relevant data is not available to the 
Secretary for purposes of determining an amount under such subsection 
for the fiscal year involved, the Secretary shall for purposes of such 
subsection make an estimate on the basis of such data as are available 
to the Secretary for the applicable period.

``SEC. 2222. INDIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
                    HOSPITAL-SPECIFIC PERCENTAGE.

  ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
          ``(1) In general.--In the case of a teaching hospital whose 
        first payments under 1886(d)(5)(B) were for discharges 
        occurring in fiscal year 1995 or in fiscal year 1996 (referred 
        to in this subsection individually as a `first payment year'), 
        the percentage determined under paragraph (2) for the hospital 
        is deemed to be the percentage applicable under section 2221(b) 
        to the hospital, except that the percentage under paragraph (2) 
        shall be adjusted in accordance with section 2221(b)(1) to the 
        extent determined by the Secretary to be necessary with respect 
        to a sum that equals 100 percent.
          ``(2) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for a 
        teaching hospital is the percentage constituted by the ratio of 
        the amount determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                  ``(A)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the total amount of payments received 
                by the hospital under section 1886(d)(5)(B) for 
                discharges occurring during fiscal year 1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996, the amount determined under this 
                subparagraph is an amount equal to an estimate by the 
                Secretary of the total amount of payments that would 
                have been paid to the hospital under section 
                1886(d)(5)(B) for discharges occurring during fiscal 
                year 1995 if such section, as in effect for fiscal year 
                1996, had applied to the hospital for discharges 
                occurring during fiscal year 1995.
                  ``(B)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the aggregate total of the payments 
                received by teaching hospitals under section 
                1886(d)(5)(B) for discharges occurring during fiscal 
                year 1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996--
                          ``(I) the Secretary shall make an estimate in 
                        accordance with subparagraph (A)(ii) for all 
                        teaching hospitals; and
                          ``(II) the amount determined under this 
                        subparagraph is the sum of the estimates made 
                        by the Secretary under subclause (I).
  ``(b) New Teaching Hospitals.--
          ``(1) In general.--In the case of a teaching hospital that 
        did not receive payments under section 1886(d)(5)(B) for any of 
        the fiscal years 1992 through 1996, the percentage determined 
        under paragraph (3) for the hospital is deemed to be the 
        percentage applicable under section 2221(b) to the hospital, 
        except that the percentage under paragraph (3) shall be 
        adjusted in accordance with section 2221(b)(1) to the extent 
        determined by the Secretary to be necessary with respect to a 
        sum that equals 100 percent. This subsection does not apply to 
        a teaching hospital described in the preceding sentence if the 
        hospital is in a State for which a demonstration project under 
        section 1814(b)(3) is in effect.
          ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be made for 
        the most recent fiscal year for which the Secretary has 
        sufficient data to make the determination (referred to in this 
        subsection as the `designated fiscal year').
          ``(3) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for the 
        teaching hospital involved is the percentage constituted by the 
        ratio of the amount determined under subparagraph (A) to the 
        amount determined under subparagraph (B), as follows:
                  ``(A) The amount determined under this subparagraph 
                is an amount equal to an estimate by the Secretary of 
                the total amount of payments that would have been paid 
                to the hospital under section 1886(d)(5)(B) for the 
                designated fiscal year if such section, as in effect 
                for the first fiscal year for which payments pursuant 
                to this subsection are to be made to the hospital, had 
                applied to the hospital for the designated fiscal year.
                  ``(B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all teaching 
                hospitals. The amount determined under this 
                subparagraph is the sum of the estimates made by the 
                Secretary under the preceding sentence.
  ``(c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to section 
2221 for one or more fiscal years and that undergo a consolidation or 
merger, the percentage applicable to the resulting teaching hospital 
for purposes of section 2221(b) is the sum of the respective 
percentages that would have applied pursuant to such section if the 
hospitals had not undergone the consolidation or merger.

``SEC. 2223. INDIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
                    HOSPITALS IN CERTAIN STATES.

  ``(a) In General.--In the case of a teaching hospital in a State for 
which a demonstration project under section 1814(b)(3) is in effect, 
this section applies in lieu of section 2221. For purposes of section 
2211(a)(1), the amount determined for a teaching hospital for a fiscal 
year is the product of--
          ``(1) the amount in the Indirect-Costs Medical Education 
        Account for the fiscal year pursuant to the allocation under 
        section 2201(d)(3)(A) for the year; and
          ``(2) the percentage determined under subsection (b) for the 
        hospital.
  ``(b) Determination of Percentage.--For purposes of subsection 
(a)(2):
          ``(1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under section 
        1886(d)(5)(B) by the hospital involved with respect to each of 
        the fiscal years of the applicable period if such section (as 
        in effect for such fiscal years) had applied to the hospital 
        for such years.
          ``(2) The percentage determined under this subsection for the 
        hospital for a fiscal year is a mean average percentage 
        determined for the hospital in accordance with the methodology 
        of section 2221(b)(1), except that the estimate made by the 
        Secretary under paragraph (1) of this subsection for a fiscal 
        year of the applicable period is deemed to be the amount that 
        applies for purposes of section 2221(b)(3)(A) for such year.
  ``(c) Rule Regarding Payments From Certain Amounts.--In the case of a 
teaching hospital in a State for which a demonstration project under 
section 1814(b)(3) is in effect, this section does not provide any 
payment to the hospital from amounts transferred to the Fund under 
section 1886(j).
  ``(d) Adjustment Regarding Payments to Other Hospitals.--In the case 
of a fiscal year for which payments pursuant to subsection (a) are made 
to one or more teaching hospitals, the following applies:
          ``(1) The Secretary shall determine a percentage equal to the 
        sum of the respective percentages determined for the hospitals 
        under subsection (b).
          ``(2) The Secretary shall determine an amount equal to the 
        product of--
                  ``(A) the percentage determined under paragraph (1); 
                and
                  ``(B) the amount in the Indirect-Costs Medical 
                Education Account for the fiscal year pursuant to the 
                transfer under section 1886(j)(1).
          ``(3) The Secretary shall, for each hospital (other than 
        hospitals described in subsection (a)), make payments to the 
        hospital whose sum is equal to the product of--
                  ``(A) the amount determined under paragraph (2); and
                  ``(B) the percentage that applies to the hospital for 
                purposes of section 2221(b), except that such 
                percentage shall be adjusted in accordance with the 
                methodology of section 2221(b)(1) to the extent 
                determined by the Secretary to be necessary with 
                respect to a sum that equals 100 percent.

   ``Subpart 3--Amount Relating to Direct Costs of Graduate Medical 
                               Education

``SEC. 2231. DETERMINATION OF AMOUNT RELATING TO DIRECT COSTS.

  ``(a) In General.--For purposes of section 2211(a)(2), the amount 
determined under this section for a teaching hospital for a fiscal year 
is the sum of--
          ``(1) the amount determined under subsection (b) (relating to 
        the General Direct-Costs Medical Education Account); and
          ``(2) the amount determined under subsection (c) (relating to 
        the Medicare Direct-Costs Medical Education Account).
  ``(b) Payment From General Account.--
          ``(1) In general.--For purposes of subsection (a)(1), the 
        amount determined under this subsection for a teaching hospital 
        for a fiscal year is the product of--
                  ``(A) the amount in the General Direct-Costs Medical 
                Education Account on the applicable date under section 
                2201(d) (once the appropriation under such section is 
                made); and
                  ``(B) the percentage determined for the hospital 
                under paragraph (2).
          ``(2) Hospital-specific percentage.--
                  ``(A) In general.--For purposes of paragraph (1)(B), 
                the percentage determined under this paragraph for a 
                teaching hospital is the mean average of the respective 
                percentages determined under subparagraph (B) for each 
                fiscal year of the applicable period (as defined in 
                section 2221(b)(2)), adjusted by the Secretary (upward 
                or downward, as the case may be) on a pro rata basis to 
                the extent necessary to ensure that the sum of the 
                percentages determined under this subparagraph for all 
                teaching hospitals is equal to 100 percent. The 
                preceding sentence is subject to sections 2232 through 
                2234.
                  ``(B) Respective determinations for fiscal years of 
                applicable period.--For purposes of subparagraph (A), 
                the percentage determined under this subparagraph for a 
                teaching hospital for a fiscal year of the applicable 
                period is the percentage constituted by the ratio of--
                          ``(i) the total amount of payments received 
                        by the hospital under section 1886(h) for cost 
                        reporting periods beginning during the fiscal 
                        year involved; to
                          ``(ii) the sum of the respective amounts 
                        determined under clause (i) for the fiscal year 
                        for all teaching hospitals.
  ``(3) Availability of data.--If a teaching hospital received the 
payments specified in paragraph (2)(B)(i) during the applicable period 
but a complete set of the relevant data is not available to the 
Secretary for purposes of determining an amount under such paragraph 
for the fiscal year involved, the Secretary shall for purposes of such 
paragraph make an estimate on the basis of such data as are available 
to the Secretary for the applicable period.
  ``(c) Payment From Medicare Account.--
          ``(1) In general.--For purposes of subsection (a)(2), the 
        amount determined under this subsection for a teaching hospital 
        for a fiscal year is the product of--
                  ``(A) the amount in the Medicare Direct-Costs Medical 
                Education Account on the applicable date under section 
                2201(d) (once the appropriation under such section is 
                made); and
                  ``(B) the percentage determined for the hospital 
                under paragraph (2).
          ``(2) Hospital-specific percentage.--For purposes of 
        paragraph (1)(B), the percentage determined under this 
        subsection for a teaching hospital for a fiscal year is the 
        percentage constituted by the ratio of--
                  ``(A) the estimate made by the Secretary for the 
                hospital for the fiscal year under section 
                1886(j)(2)(B); to
                  ``(B) the sum of the respective estimates referred to 
                in subparagraph (A) for all teaching hospitals.

``SEC. 2232. DIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
                    HOSPITAL-SPECIFIC PERCENTAGE.

  ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
          ``(1) In general.--In the case of a teaching hospital whose 
        first payments under 1886(h) were for cost reporting period 
        beginning in fiscal year 1995 or in fiscal year 1996 (referred 
        to in this subsection individually as a `first payment year'), 
        the percentage determined under paragraph (2) for the hospital 
        is deemed to be the percentage applicable under section 
        2231(b)(2) to the hospital, except that the percentage under 
        paragraph (2) shall be adjusted in accordance with section 
        2231(b)(2)(A) to the extent determined by the Secretary to be 
        necessary with respect to a sum that equals 100 percent.
          ``(2) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for a 
        teaching hospital is the percentage constituted by the ratio of 
        the amount determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                  ``(A)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the total amount of payments received 
                by the hospital under section 1886(h) for cost 
                reporting periods beginning in fiscal year 1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996, the amount determined under this 
                subparagraph is an amount equal to an estimate by the 
                Secretary of the total amount of payments that would 
                have been paid to the hospital under section 1886(h) 
                for cost reporting periods beginning in fiscal year 
                1995 if such section, as in effect for fiscal year 
                1996, had applied to the hospital for fiscal year 1995.
                  ``(B)(i) If the first payment year for the hospital 
                is fiscal year 1995, the amount determined under this 
                subparagraph is the aggregate total of the payments 
                received by teaching hospitals under section 1886(h) 
                for cost reporting periods beginning in fiscal year 
                1995.
                  ``(ii) If the first payment year for the hospital is 
                fiscal year 1996--
                          ``(I) the Secretary shall make an estimate in 
                        accordance with subparagraph (A)(ii) for all 
                        teaching hospitals; and
                          ``(II) the amount determined under this 
                        subparagraph is the sum of the estimates made 
                        by the Secretary under subclause (I).
  ``(b) New Teaching Hospitals.--
          ``(1) In general.--In the case of a teaching hospital that 
        did not receive payments under section 1886(h) for any of the 
        fiscal years 1992 through 1996, the percentage determined under 
        paragraph (3) for the hospital is deemed to be the percentage 
        applicable under section 2231(b)(2) to the hospital, except 
        that the percentage under paragraph (3) shall be adjusted in 
        accordance with section 2231(b)(2)(A) to the extent determined 
        by the Secretary to be necessary with respect to a sum that 
        equals 100 percent. This subsection does not apply to a 
        teaching hospital described in the preceding sentence if the 
        hospital is in a State for which a demonstration project under 
        section 1814(b)(3) is in effect.
          ``(2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be made for 
        the most recent fiscal year for which the Secretary has 
        sufficient data to make the determination (referred to in this 
        subsection as the `designated fiscal year').
          ``(3) Determination of percentage.--For purposes of paragraph 
        (1), the percentage determined under this paragraph for the 
        teaching hospital involved is the percentage constituted by the 
        ratio of the amount determined under subparagraph (A) to the 
        amount determined under subparagraph (B), as follows:
                  ``(A) The amount determined under this subparagraph 
                is an amount equal to an estimate by the Secretary of 
                the total amount of payments that would have been paid 
                to the hospital under section 1886(h) for the 
                designated fiscal year if such section, as in effect 
                for the first fiscal year for which payments pursuant 
                to this subsection are to be made to the hospital, had 
                applied to the hospital for cost reporting periods 
                beginning in the designated fiscal year.
                  ``(B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all teaching 
                hospitals. The amount determined under this 
                subparagraph is the sum of the estimates made by the 
                Secretary under the preceding sentence.
  ``(c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to section 
2231 for one or more fiscal years and that undergo a consolidation or 
merger, the percentage applicable to the resulting teaching hospital 
for purposes of section 2231(b) is the sum of the respective 
percentages that would have applied pursuant to such section if the 
hospitals had not undergone the consolidation or merger.

``SEC. 2233. DIRECT COSTS; AUTHORITY FOR PAYMENTS TO CONSORTIA OF 
                    PROVIDERS.

  ``(a) In General.--In lieu of making payments to teaching hospitals 
pursuant to section 2231, the Secretary may make payments under this 
section to consortia that meet the requirements of subsection (b).
  ``(b) Qualifying Consortium.--For purposes of subsection (a), a 
consortium meets the requirements of this subsection if the consortium 
is in compliance with the following:
          ``(1) The consortium consists of an approved medical 
        residency training program, a teaching hospital, and one or 
        more of the following entities:
                  ``(A) Schools of medicine or osteopathic medicine.
                  ``(B) Other teaching hospitals (or the approved 
                medical residency training programs of the hospitals).
                  ``(C) Community health centers (under section 330 of 
                the Public Health Service Act), migrant health centers 
                (under section 329 of such Act), or facilities 
                described in section 340 of such Act.
                  ``(D) Medical group practices.
                  ``(E) Managed care entities.
                  ``(F) Entities furnishing outpatient services.
                  ``(G) Such other entities as the Secretary determines 
                to be appropriate.
          ``(2) The members of the consortium have agreed to 
        participate in the programs of graduate medical education that 
        are operated by the teaching hospitals in the consortium.
          ``(3) With respect to the receipt by the consortium of 
        payments made pursuant to this section, the members of the 
        consortium have agreed on a method for allocating the payments 
        among the members.
          ``(4) The consortium meets such additional requirements as 
        the Secretary may establish.
  ``(c) Payments From Accounts.--
          ``(1) In general.--Subject to subsection (d), the total of 
        payments to a qualifying consortium for a fiscal year pursuant 
        to subsection (a) shall be the sum of--
          ``(1) the aggregate amount determined for the teaching 
        hospitals of the consortium pursuant to paragraph (1) of 
        section 2231(a); and
          ``(2) an amount determined in accordance with the methodology 
        that applies pursuant to paragraph (2) of such section, except 
        that the estimate used for purposes of subsection (c)(2)(A) of 
        such section shall be the estimate made for the consortium 
        under section 1886(j)(2)(C)(ii).
  ``(d) Limitation on Aggregate Total of Payments to Consortia.--The 
aggregate total of the amounts paid under subsection (c)(2) to 
qualifying consortia for a fiscal year may not exceed the sum of--
          ``(1) the aggregate total of the amounts that would have been 
        paid under section 2231(c) for the fiscal year to the teaching 
        hospitals of the consortia if the hospitals had not been 
        participants in the consortia; and
          ``(2) an amount equal to 1 percent of the amount that applies 
        under paragraph (1)(A) of such section for the fiscal year 
        (relating to the Medicare Direct-Costs Medical Education 
        Account).
  ``(e) Definition.--For purposes of this title, the term `qualifying 
consortium' means a consortium that meets the requirements of 
subsection (b).

``SEC. 2234. DIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
                    HOSPITALS IN CERTAIN STATES.

  ``(a) In General.--In the case of a teaching hospital in a State for 
which a demonstration project under section 1814(b)(3) is in effect, 
this section applies in lieu of section 2231. For purposes of section 
2211(a)(2), the amount determined for a teaching hospital for a fiscal 
year is the product of--
          ``(1) the amount in the General Direct-Costs Medical 
        Education Account on the applicable date under section 2201(d) 
        (once the appropriation under such section is made); and
          ``(2) the percentage determined under subsection (b) for the 
        hospital.
  ``(b) Determination of Percentage.--For purposes of subsection 
(a)(2):
          ``(1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under section 
        1886(h) by the hospital involved with respect to each of the 
        fiscal years of the applicable period if such section (as in 
        effect for such fiscal years) had applied to the hospital for 
        such years.
          ``(2) The percentage determined under this subsection for the 
        hospital for a fiscal year is a mean average percentage 
        determined for the hospital in accordance with the methodology 
        of section 2231(b)(2)(A), except that the estimate made by the 
        Secretary under paragraph (1) of this subsection for a fiscal 
        year of the applicable period is deemed to be the amount that 
        applies for purposes of section 2231(b)(2)(B)(i) for such year.
  ``(c) Rule Regarding Payments From Certain Amounts.--In the case of a 
teaching hospital in a State for which a demonstration project under 
section 1814(b)(3) is in effect, this section does not provide any 
payment to the hospital from amounts transferred to the Fund under 
section 1886(j).

                    ``Subpart 4--General Provisions

``SEC. 2241. ADJUSTMENTS IN PAYMENT AMOUNTS.

  ``(a) Collection of Data on Accuracy of Estimates.--The Secretary 
shall collect data on whether the estimates made by the Secretary under 
section 1886(j) for a fiscal year were substantially accurate.
  ``(b) Adjustments.--If the Secretary determines under subsection (a) 
that an estimate for a fiscal year was not substantially accurate, the 
Secretary shall, for the first fiscal year beginning after the 
Secretary makes the determination--
          ``(1) make adjustments accordingly in transfers to the Fund 
        under section 1886(j); and
          ``(2) make adjustments accordingly in the amount of payments 
        to teaching hospitals pursuant to 2231(c) (or, as applicable, 
        to qualifying consortia pursuant to section 2233(c)(2)).''.

                 PART 2--AMENDMENTS TO MEDICARE PROGRAM

SEC. 15411. TRANSFERS TO TEACHING HOSPITAL AND GRADUATE MEDICAL 
                    EDUCATION TRUST FUND.

  Section 1886 (42 U.S.C. 1395ww) is amended--
          (1) in subsection (d)(5)(B), in the matter preceding clause 
        (i), by striking ``The Secretary shall provide'' and inserting 
        the following: ``For discharges occurring on or before 
        September 30, 1996, the Secretary shall provide'';
          (2) in subsection (h)--
                  (A) in paragraph (1), in the first sentence, by 
                striking ``the Secretary shall provide'' and inserting 
                ``the Secretary shall, subject to paragraph (6), 
                provide''; and
                  (B) by adding at the end the following paragraph:
          ``(6) Limitation.--
                  ``(A) In general.--The authority to make payments 
                under this subsection applies only with respect to cost 
                reporting periods ending on or before September 30, 
                1996, except as provided in subparagraph (B).
                  ``(B) Rule regarding portion of last cost reporting 
                period.--In the case of a cost reporting period that 
                extends beyond September 30, 1996, payments under this 
                subsection shall be made with respect to such portion 
                of the period as has lapsed as of such date.
                  ``(C) Rule of construction.--This paragraph may not 
                be construed as authorizing any payment under section 
                1861(v) with respect to graduate medical education.''; 
                and
          (3) by adding at the end the following subsection:
  ``(j) Transfers to Teaching Hospital and Graduate Medical Education 
Trust Fund.--
          ``(1) Indirect costs of medical education.--
                  ``(A) In general.--From the Federal Hospital 
                Insurance Trust Fund, the Secretary shall, for fiscal 
                year 1997 and each subsequent fiscal year, transfer to 
                the Indirect-Costs Medical Education Account (under 
                section 2201) an amount determined by the Secretary in 
                accordance with subparagraph (B).
                  ``(B) Determination of amounts.--The Secretary shall 
                make an estimate for the fiscal year involved of the 
                nationwide total of the amounts that would have been 
                paid under subsection (d)(5)(B) to hospitals during the 
                fiscal year if such payments had not been terminated 
                for discharges occurring after September 30, 1996. For 
                purposes of subparagraph (A), the amount determined 
                under this subparagraph for the fiscal year is the 
                estimate made by the Secretary under the preceding 
                sentence.
          ``(2) Direct costs of medical education.--
                  ``(A) In general.--From the Federal Hospital 
                Insurance Trust Fund and the Federal Supplementary 
                Medical Insurance Trust Fund, the Secretary shall, for 
                fiscal year 1997 and each subsequent fiscal year, 
                transfer to the Medicare Direct-Costs Medical Education 
                Account (under section 2201) the sum of--
                          ``(i) an amount determined by the Secretary 
                        in accordance with subparagraph (B); and
                          ``(ii) as applicable, an amount determined by 
                        the Secretary in accordance with subparagraph 
                        (C)(ii).
                  ``(B) Determination of amounts.--For each hospital 
                (other than a hospital that is a member of a qualifying 
                consortium referred to in subparagraph (C)), the 
                Secretary shall make an estimate for the fiscal year 
                involved of the amount that would have been paid under 
                subsection (h) to the hospital during the fiscal year 
                if such payments had not been terminated for cost 
                reporting periods ending on or before September 30, 
                1996. For purposes of subparagraph (A)(i), the amount 
                determined under this subparagraph for the fiscal year 
                is the sum of all estimates made by the Secretary under 
                the preceding sentence.
                  ``(C) Estimates regarding qualifying consortia.--If 
                the Secretary elects to authorize one or more 
                qualifying consortia for purposes of section 2233(a), 
                the Secretary shall carry out the following:
                          ``(i) The Secretary shall establish a 
                        methodology for making payments to qualifying 
                        consortia with respect to the reasonable direct 
                        costs of such consortia in carrying out 
                        programs of graduate medical education. The 
                        methodology shall be the methodology 
                        established in subsection (h), modified to the 
                        extent necessary to take into account the 
                        participation in such programs of entities 
                        other than hospitals.
                          ``(ii) For each qualifying consortium, the 
                        Secretary shall make an estimate for the fiscal 
                        year involved of the amount that would have 
                        been paid to the consortium during the fiscal 
                        year if, using the methodology under clause 
                        (i), payments had been made to the consortium 
                        for the fiscal year as reimbursements with 
                        respect to cost reporting periods. For purposes 
                        of subparagraph (A)(ii), the amount determined 
                        under this clause for the fiscal year is the 
                        sum of all estimates made by the Secretary 
                        under the preceding sentence.
                  ``(D) Allocation between funds.--In providing for a 
                transfer under subparagraph (A) for a fiscal year, the 
                Secretary shall provide for an allocation of the 
                amounts involved between part A and part B (and the 
                trust funds established under the respective parts) as 
                reasonably reflects the proportion of direct graduate 
                medical education costs of hospitals associated with 
                the provision of services under each respective part.
          ``(3) Applicability of certain amendments.--Amendments made 
        to subsection (d)(5)(B) and subsection (h) that are effective 
        on or after October 1, 1996, apply only for purposes of 
        estimates under paragraphs (1) and (2) and for purposes of 
        determining the amount of payments under 2211. Such amendments 
        do not require any adjustment to amounts paid under subsection 
        (d)(5)(B) or (h) with respect to fiscal year 1996 or any prior 
        fiscal year.
          ``(4) Relationship to certain demonstration projects.--In the 
        case of a State for which a demonstration project under section 
        1814(b)(3) is in effect, the Secretary, in making 
        determinations of the rates of increase under such section, 
        shall include all amounts transferred under this subsection. 
        Such amounts shall be so included to the same extent and in the 
        same manner as amounts determined under subsections (d)(5)(B) 
        and (h) were included in such determination under the 
        provisions of this title in effect on September 30, 1996.''.

SEC. 15412. MODIFICATION IN PAYMENT POLICIES REGARDING GRADUATE MEDICAL 
                    EDUCATION.

  (a) Indirect Costs of Medical Education; Applicable Percentage.--
          (1) Modification regarding 5.6 percent.--Section 
        1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is amended--
                  (A) by striking ``on or after October 1, 1988,'' and 
                inserting ``on or after October 1, 1999,''; and
                  (B) by striking ``1.89'' and inserting ``1.38''.
          (2) Special rule regarding fiscal years 1996 through 1998; 
        modification regarding 6 percent.--Section 1886(d)(5)(B)(ii), 
        as amended by paragraph (1), is amended by adding at the end 
        the following: ``In the case of discharges occurring on or 
        after October 1, 1995, and before October 1, 1999, the 
        preceding sentence applies to the same extent and in the same 
        manner as the sentence applies to discharges occurring on or 
        after October 1, 1999, except that the term `1.38' is deemed to 
        be `1.48'.''.
          (3) Conforming amendment relating to determination of 
        standardized amounts.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
        1395ww(d)(2)(C)(i)) is amended by striking ``1985'' and 
        inserting the following: ``1985, but (for discharges occurring 
        after September 30, 1995) not taking into account any 
        reductions in such costs resulting from the amendments made by 
        section 15412(a) of the Medicare Preservation Act of 1995''.
  (b) Direct Costs of Medical Education.--
          (1) Limitation on number of full-time-equivalent residents.--
        Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by 
        adding at the end the following new subparagraph:
                  ``(F) Limitation on number of residents for certain 
                fiscal years.--Such rules shall provide that for 
                purposes of a cost reporting period beginning on or 
                after October 1, 1995, and on or before September 30, 
                2002, the number of full-time-equivalent residents 
                determined under this paragraph with respect to an 
                approved medical residency training program may not 
                exceed the number of full-time-equivalent residents 
                with respect to the program as of August 1, 1995 
                (except that this subparagraph does not apply to any 
                nonphysician teaching program that is approved for 
                purposes of section 1861(b)(6) and that, under 
                paragraph (5)(A), is an approved medical residency 
                training program).''.
          (2) Exclusion of residents after initial residency period.--
        Section 1886(h)(4)(C) (42 U.S.C. 1395ww(h)(4)(C)) is amended to 
        read as follows:
                  ``(C) Weighting factors for residents.--Effective for 
                cost reporting periods beginning on or after October 1, 
                1997, such rules shall provide that, in the calculation 
                of the number of full-time-equivalent residents in an 
                approved residency program, the weighting factor for a 
                resident who is in the initial residency period (as 
                defined in paragraph (5)(F)) is 1.0 and the weighting 
                factor for a resident who has completed such period is 
                0.0. (In the case of cost reporting periods beginning 
                before October 1, 1997, the weighting factors that 
                apply in such calculation are the weighting factors 
                that were applicable under this subparagraph on the day 
                before the date of the enactment of the Medicare 
                Preservation Act of 1995.)''.
          (3) Reductions in payments for alien residents.--Section 
        1886(h)(4) (42 U.S.C. 1395ww(h)(4)), as amended by paragraph 
        (1), is amended by adding at the end the following new 
        subparagraph:
                  ``(G) Special rules for alien residents.--In the case 
                of individuals who are not citizens or nationals of the 
                United States and who are not citizens of Canada, in 
                the calculation of the number of full-time-equivalent 
                residents in an approved medical residency program, the 
                following rules shall apply with respect to such 
                individuals who are residents in the program:
                          ``(i) For a cost reporting period beginning 
                        during fiscal year 1996, for each such 
                        individual the Secretary shall apply a 
                        weighting factor of .75.
                          ``(ii) For a cost reporting period beginning 
                        during fiscal year 1997, for each such 
                        individual the Secretary shall apply a 
                        weighting factor of .50.
                          ``(iii) For a cost reporting period beginning 
                        during fiscal year 1998, for each such 
                        individual the Secretary shall apply a 
                        weighting factor of .25.
                          ``(iv) For a cost reporting period beginning 
                        during fiscal year 1999 or any subsequent 
                        fiscal year, such individuals shall be excluded 
                        from the calculation of the number of full-
                        time-equivalent residents in an approved 
                        medical residency program under this 
                        paragraph.''.
          (4) Effective date.--Except as provided otherwise in this 
        subsection (or in the amendments made by this subsection), the 
        amendments made by this subsection apply to hospital cost 
        reporting periods beginning on or after October 1, 1995.

  PART 3--REFORM OF FEDERAL POLICIES REGARDING TEACHING HOSPITALS AND 
                       GRADUATE MEDICAL EDUCATION

SEC. 15421. ESTABLISHMENT OF ADVISORY PANEL FOR RECOMMENDING POLICIES.

  Title XXII of the Social Security Act, as added by section 15401, is 
amended by adding at the end the following part:

                        ``Part C--Other Matters

``SEC. 2251. ADVISORY PANEL ON REFORM IN FINANCING OF TEACHING 
                    HOSPITALS AND GRADUATE MEDICAL EDUCATION.

  ``(a) Establishment.--The Chair of the Medicare Payment Review 
Commission under section 1806 shall establish a temporary advisory 
panel to be known as the Advisory Panel on Financing for Teaching 
Hospitals and Graduate Medical Education (in this section referred to 
as the `Panel').
  ``(b) Duties.--The Panel shall develop recommendations on whether and 
to what extent Federal policies regarding teaching hospitals and 
graduate medical education should be reformed, including 
recommendations regarding the following:
          ``(1) The financing of graduate medical education, including 
        consideration of alternative broad-based sources of funding for 
        such education.
          ``(2) The financing of teaching hospitals, including 
        consideration of the difficulties encountered by such hospitals 
        as competition among health care entities increases. Matters 
        considered under this paragraph shall include consideration of 
        the effects on teaching hospitals of the method of financing 
        used for the MedicarePlus program under part C of title XVIII.
          ``(3) The methodology for making payments for graduate 
        medical education, and the selection of entities to receive the 
        payments. Matters considered under this paragraph shall include 
        the following:
                  ``(A) The methodology under part B for making 
                payments from the Fund, including the use of data from 
                the fiscal years 1992 through 1994, and including the 
                methodology that applies with respect to consolidations 
                and mergers of participants in the program under such 
                part and with respect to the inclusion of additional 
                participants in the program.
                  ``(B) Issues regarding children's hospitals, and 
                approved medical residency training programs in 
                pediatrics.
                  ``(C) Whether and to what extent payments are being 
                made (or should be made) for graduate training in the 
                various nonphysician health professions.
          ``(4) Federal policies regarding international medical 
        graduates.
          ``(5) The dependence of schools of medicine on service-
        generated income.
          ``(6) The effects of the amendments made by section 15412 of 
        the Medicare Preservation Act of 1995, including adverse 
        effects on teaching hospitals that result from modifications in 
        policies regarding international medical graduates.
          ``(7) Whether and to what extent the needs of the United 
        States regarding the supply of physicians will change during 
        the 10-year beginning on October 1, 1995, and whether and to 
        what extent any such changes will have significant financial 
        effects on teaching hospitals.
          ``(8) The appropriate number and mix of residents.
  ``(c) Composition.--Not later than three months after being 
designated as the initial chairman of the Medicare Payment Review 
Commission, the chairman of the Commission shall appoint to the Panel 
19 individuals who are not members of the Commission, who are not 
officers or employees of the United States, and who possess expertise 
on matters on which the Panel is to make recommendations under 
subsection (b). Such individuals shall include the following:
          ``(1) Deans from allopathic and osteopathic schools of 
        medicine.
          ``(2) Chief executive officers (or equivalent administrative 
        heads) from academic health centers, integrated health care 
        systems, and approved medical residency training programs.
          ``(3) Chairs of departments or divisions from allopathic and 
        osteopathic schools of medicine, schools of dentistry, and 
        approved medical residency training programs in oral surgery.
          ``(4) Individuals with leadership experience from each of the 
        fields of advanced practice nursing, physician assistants, and 
        podiatric medicine.
          ``(5) Individuals with substantial experience in the study of 
        issues regarding the composition of the health care workforce 
        of the United States.
          ``(6) Individuals with expertise on the financing of health 
        care.
          ``(7) Representatives from health insurance organizations and 
        health plan organizations.
  ``(d) Relationship of Panel to Medicare Payment Review Commission.--
From amounts appropriated under subsection (n), the Medicare Review 
Payment Commission shall provide for the Panel such staff and 
administrative support (including quarters for the Panel) as may be 
necessary for the Panel to carry out the duties under subsection (b).
  ``(e) Chair.--The Panel shall designate a member of the Panel to 
serve as the Chair of the Panel.
  ``(f) Meetings.--The Panel shall meet at the call of the Chair or a 
majority of the members, except that the first meeting of the Panel 
shall be held not later than three months after the date on which 
appointments under subsection (c) are completed.
  ``(g) Terms.--The term of a member of the Panel is the duration of 
the Panel.
  ``(h) Vacancies.--
          ``(1) In general.--A vacancy in the membership of the Panel 
        does not affect the power of the remaining members to carry out 
        the duties under subsection (b). A vacancy in the membership of 
        the Panel shall be filled in the manner in which the original 
        appointment was made.
          ``(2) Incomplete term.--If a member of the Panel does not 
        serve the full term applicable to the member, the individual 
        appointed to fill the resulting vacancy shall be appointed for 
        the remainder of the term of the predecessor of the individual.
  ``(i) Compensation; Reimbursement of Expenses.--
          ``(1) Compensation.--Members of the Panel shall receive 
        compensation for each day (including traveltime) engaged in 
        carrying out the duties of the Committee. Such compensation may 
        not be in an amount in excess of the daily equivalent of the 
        annual maximum rate of basic pay payable under the General 
        Schedule (under title 5, United States Code) for positions 
        above GS-15.
          ``(2) Reimbursement.--Members of the Panel may, in accordance 
        with chapter 57 of title 5, United States Code, be reimbursed 
        for travel, subsistence, and other necessary expenses incurred 
        in carrying out the duties of the Panel.
  ``(j) Consultants.--The Panel may procure such temporary and 
intermittent services of consultants under section 3109(b) of title 5, 
United States Code, as the Panel may determine to be useful in carrying 
out the duties under subsection (b). The Panel may not procure services 
under this subsection at any rate in excess of the daily equivalent of 
the maximum annual rate of basic pay payable under the General Schedule 
for positions above GS-15. Consultants under this subsection may, in 
accordance with chapter 57 of title 5, United States Code, be 
reimbursed for travel, subsistence, and other necessary expenses 
incurred for activities carried out on behalf of the Panel pursuant to 
subsection (b).
  ``(k) Powers.--
          ``(1) In general.--For the purpose of carrying out the duties 
        of the Panel under subsection (b), the Panel may hold such 
        hearings, sit and act at such times and places, take such 
        testimony, and receive such evidence as the Panel considers 
        appropriate.
          ``(2) Obtaining official information.--Upon the request of 
        the Panel, the heads of Federal agencies shall furnish directly 
        to the Panel information necessary for the Panel to carry out 
        the duties under subsection (b).
          ``(3) Use of mails.--The Panel may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies.
  ``(l) Reports.--
          ``(1) First interim report.--Not later than one year after 
        the date of the enactment of the Medicare Preservation Act of 
        1995, the Panel shall submit to the Congress a report providing 
        the recommendations of the Panel regarding the matters 
        specified in paragraphs (1) through (4) of subsection (b).
          ``(2) Second interim report.--Not later than 2 years after 
        the date of enactment specified in paragraph (1), the Panel 
        shall submit to the Congress a report providing the 
        recommendations of the Panel regarding the matters specified in 
        paragraphs (5) and (6) of subsection (b).
          ``(3) Final report.--Not later than 3 years after the date of 
        enactment specified in paragraph (1), the Panel shall submit to 
        the Congress a final report providing the recommendations of 
        the Panel under subsection (b).
  ``(m) Duration.--The Panel terminates upon the expiration of the 180-
day period beginning on the date on which the final report under 
subsection (l)(3) is submitted to the Congress.
  ``(n) Authorization of Appropriations.--
          ``(1) In general.--Subject to paragraph (2), for the purpose 
        of carrying out this section, there are authorized to be 
        appropriated such sums as may be necessary for each of the 
        fiscal years 1996 through 2000.
          ``(2) Limitation.--The authorization of appropriations 
        established in paragraph (1) is effective only with respect to 
        appropriations made from allocations under section 302(b) of 
        the Congressional Budget Act of 1974--
                  ``(A) for the Subcommittee on Labor, Health and Human 
                Services, and Education, Committee on Appropriations of 
                the House of Representatives, in the case of any bill, 
                resolution, or amendment considered in the House; and
                  ``(B) for the Subcommittee on Labor, Health and Human 
                Services, and Education, Committee on Appropriations of 
                the Senate, in the case of any bill, resolution, or 
                amendment considered in the Senate.''.

         Subtitle  F--Provisions  Relating  to  Medicare Part A

                           PART 1--HOSPITALS

          Subpart A--General Provisions Relating to Hospitals

SEC. 15501. REDUCTIONS IN INFLATION UPDATES FOR PPS HOSPITALS.

  Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is amended by 
striking subclauses (XI), (XII), and (XIII) and inserting the 
following:
          ``(XI) for fiscal year 1996, the market basket percentage 
        increase minus 2.5 percentage points for hospitals in all 
        areas,
          ``(XII) for each of the fiscal years 1997 through 2002, the 
        market basket percentage increase minus 2.0 percentage points 
        for hospitals in all areas, and
          ``(XIII) for fiscal year 2003 and each subsequent fiscal 
        year, the market basket percentage increase for hospitals in 
        all areas.''.

SEC. 15502. REDUCTIONS IN DISPROPORTIONATE SHARE PAYMENT ADJUSTMENTS.

  (a) In General.--Section 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 
amended--
          (1) in clause (ii), by striking ``The amount'' and inserting 
        ``Subject to clause (ix), the amount''; and
          (2) by adding at the end the following new clause:
  ``(ix) In the case of discharges occurring on or after October 1, 
1995, the additional payment amount otherwise determined under clause 
(ii) shall be reduced as follows:
          ``(I) For discharges occurring on or after October 1, 1995, 
        and on or before September 30, 1996, by 20 percent.
          ``(II) For discharges occurring on or after October 1, 1996, 
        and on or before September 30, 1997, by 25 percent.
          ``(III) For discharges occurring on or after October 1, 1997, 
        by 30 percent.''.
  (b) Conforming Amendment Relating to Determination of Standardized 
Amounts.--Section 1886(d)(2)(C)(iv) (42 U.S.C. 1395ww(d)(2)(C)(iv)) is 
amended by striking the period at the end and inserting the following: 
``, and the Secretary shall not take into account any reductions in the 
amount of such additional payments resulting from the amendments made 
by section 15502(a) of the Medicare Preservation Act of 1995.''.

SEC. 15503. PAYMENTS FOR CAPITAL-RELATED COSTS FOR INPATIENT HOSPITAL 
                    SERVICES.

  (a) Reduction in Payments for PPS Hospitals.--
          (1) Continuation of current reductions.--Section 
        1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended in the 
        second sentence--
                  (A) by striking ``through 1995'' and inserting 
                ``through 2002''; and
                  (B) by inserting after ``10 percent reduction'' the 
                following: ``(or a 15 percent reduction in the case of 
                payments during fiscal years 1996 through 2002)''.
          (2) Reduction in base payment rates.--Section 1886(g)(1)(A) 
        (42 U.S.C. 1395ww(g)(1)(A)) is amended by adding at the end the 
        following new sentence: ``In addition to the reduction 
        described in the preceding sentence, for discharges occurring 
        after September 30, 1995, the Secretary shall reduce by 7.47 
        percent the unadjusted standard Federal capital payment rate 
        (as described in 42 CFR 412.308(c), as in effect on the date of 
        the enactment of the Medicare Preservation Act of 1995) and 
        shall reduce by 8.27 percent the unadjusted hospital-specific 
        rate (as described in 42 CFR 412.328(e)(1), as in effect on 
        such date of enactment).''.
  (b) Reduction in Payments for PPS-Exempt Hospitals.--Section 1886(g) 
(42 U.S.C. 1395ww(g)) is amended by adding at the end the following new 
paragraph:
  ``(4)(A) Except as provided in subparagraph (B), in determining the 
amount of the payments that may be made under this title with respect 
to all the capital-related costs of inpatient hospital services 
furnished during fiscal years 1996 through 2002 of a hospital which is 
not a subsection (d) hospital or a subsection (d) Puerto Rico hospital, 
the Secretary shall reduce the amounts of such payments otherwise 
determined under this title by 15 percent.
  ``(B) Subparagraph (A) shall not apply to payments with respect to 
the capital-related costs of any hospital that is a sole community 
hospital (as defined in subsection (d)(5)(D)(iii) or a rural primary 
care hospital (as defined in section 1861(mm)(1)).''.
  (c) Hospital-Specific Adjustment for Capital-Related Tax Costs.--
Section 1886(g)(1) (42 U.S.C. 1395ww(g)(1)) is amended--
          (1) by redesignating subparagraph (C) as subparagraph (D), 
        and
          (2) by inserting after subparagraph (B) the following:
  ``(C)(i) For discharges occurring after September 30, 1995, such 
system shall provide for an adjustment in an amount equal to the amount 
determined under clause (iv) for capital-related tax costs for each 
hospital that is eligible for such adjustment.
  ``(ii) Subject to clause (iii), a hospital is eligible for an 
adjustment under this subparagraph, with respect to discharges 
occurring in a fiscal year, if the hospital--
          ``(I) is a hospital that may otherwise receive payments under 
        this subsection,
          ``(II) is not a public hospital, and
          ``(III) incurs capital-related tax costs for the fiscal year.
  ``(iii)(I) In the case of a hospital that first incurs capital-
related tax costs in a fiscal year after fiscal year 1992 because of a 
change from nonproprietary to proprietary status or because the 
hospital commenced operation after such fiscal year, the first fiscal 
year for which the hospital shall be eligible for such adjustment is 
the second full fiscal year following the fiscal year in which the 
hospital first incurs such costs.
  ``(II) In the case of a hospital that first incurs capital-related 
tax costs in a fiscal year after fiscal year 1992 because of a change 
in State or local tax laws, the first fiscal year for which the 
hospital shall be eligible for such adjustment is the fourth full 
fiscal year following the fiscal year in which the hospital first 
incurs such costs.
  ``(iv) The per discharge adjustment under this clause shall be equal 
to the hospital-specific capital-related tax costs per discharge of a 
hospital for fiscal year 1992 (or, in the case of a hospital that first 
incurs capital-related tax costs for a fiscal year after fiscal year 
1992, for the first full fiscal year for which such costs are 
incurred), updated to the fiscal year to which the adjustment applies. 
Such per discharge adjustment shall be added to the Federal capital 
rate, after such rate has been adjusted as described in 42 CFR 412.312 
(as in effect on the date of the enactment of the Medicare Preservation 
Act of 1995), and before such rate is multiplied by the applicable 
Federal rate percentage.
  ``(v) For purposes of this subparagraph, capital-related tax costs 
include--
          ``(I) the costs of taxes on land and depreciable assets owned 
        by a hospital (or related organization) and used for patient 
        care,
          ``(II) payments in lieu of such taxes (made by hospitals that 
        are exempt from taxation), and
          ``(III) the costs of taxes paid by a hospital (or related 
        organization) as lessee of land, buildings, or fixed equipment 
        from a lessor that is unrelated to the hospital (or related 
        organization) under the terms of a lease that requires the 
        lessee to pay all expenses (including mortgage, interest, and 
        amortization) and leaves the lessor with an amount free of all 
        claims (sometimes referred to as a `net net net' or `triple 
        net' lease).
In determining the adjustment required under clause (i), the Secretary 
shall not take into account any capital-related tax costs of a hospital 
to the extent that such costs are based on tax rates and assessments 
that exceed those for similar commercial properties.
  ``(vi) The system shall provide that the Federal capital rate for any 
fiscal year after September 30, 1995, shall be reduced by a percentage 
sufficient to ensure that the adjustments required to be paid under 
clause (i) for a fiscal year neither increase nor decrease the total 
amount that would have been paid under this system but for the payment 
of such adjustments for such fiscal year.''.
  (d) Revision of Exceptions Process Under Prospective Payment System 
for Certain Projects.--
          (1) In general.--Section 1886(g)(1) (42 U.S.C. 1395ww(g)(1)), 
        as amended by subsection (c), is amended--
                  (A) by redesignating subparagraph (D) as subparagraph 
                (E), and
                  (B) by inserting after subparagraph (C) the 
                following:
  ``(D) The exceptions under the system provided by the Secretary under 
subparagraph (B)(iii) shall include the provision of exception payments 
under the special exceptions process provided under 42 CFR 412.348(g) 
(as in effect on September 1, 1995), except that the Secretary shall 
revise such process as follows:
          ``(i) A hospital with at least 100 beds which is located in 
        an urban area shall be eligible under such process without 
        regard to its disproportionate patient percentage under 
        subsection (d)(5)(F) or whether it qualifies for additional 
        payment amounts under such subsection.
          ``(ii) The minimum payment level for qualifying hospitals 
        shall be 85 percent.
          ``(iii) A hospital shall be considered to meet the 
        requirement that it completes the project involved no later 
        than the end of the hospital's last cost reporting period 
        beginning after October 1, 2001, if--
                  ``(I) the hospital has obtained a certificate of need 
                for the project approved by the State or a local 
                planning authority, and
                  ``(II) by September 1, 1995, the hospital has 
                expended on the project at least $750,000 or 10 percent 
                of the estimated cost of the project.
          ``(iv) The amount of the exception payment made shall not be 
        reduced by any offsetting amounts.''.
          (2) Conforming amendment.--Section 1886(g)(1)(B)(iii) (42 
        U.S.C. 1395ww(g)(1)(B)(iii)) is amended by striking ``may 
        provide'' and inserting ``shall provide (in accordance with 
        subparagraph (D))''.

SEC. 15504. REDUCTION IN ADJUSTMENT FOR INDIRECT MEDICAL EDUCATION.

  For provisions modifying medicare payment policies regarding graduate 
medical education, see part 2 of subtitle E.

SEC. 15505. TREATMENT OF PPS-EXEMPT HOSPITALS.

  (a) Updates.--Section 1886(b)(3)(B)(ii)(V) (42 U.S.C. 
1395ww(b)(3)(B)(ii)(V)) is amended by striking ``thorugh 1997'' and 
inserting ``through 2002''.
  (b) Rebasing for Certain Long-Term Care Hospitals.--
          (1) In general.--Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)) 
        is amended--
                  (A) in subparagraph (A), by striking ``and (E)'' and 
                inserting ``(E), and (F)'';
                  (B) in subparagraph (B)(ii), by striking ``(A) and 
                (E)'' and inserting ``(A), (E), and (F)''; and
                  (C) by adding at the end the following new 
                subparagraph:
  ``(F)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)), the term `target amount' means--
          ``(I) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the hospital, 
        the allowable operating costs of inpatient hospital services 
        (as defined in subsection (a)(4)) recognized under this title 
        for the hospital for the 12-month cost reporting period 
        beginning during fiscal year 1991; or
          ``(II) with respect to a later cost reporting period, the 
        target amount for the preceding cost reporting period, increase 
        by the applicable percentage increase under subparagraph 
        (B)(ii) for that later cost reporting period.
  ``(ii) In clause (i), a `qualified long-term care hospital' means, 
with respect to a cost reporting period, a hospital described in clause 
(iv) of subsection (d)(1)(B) during fiscal year 1995 for which the 
hospital's allowable operating costs of inpatient hospital services 
recognized under this title for each of the two most recent previous 
12-month cost reporting periods exceeded the hospital's target amount 
determined under this paragraph for such cost reporting periods, if the 
hospital--
          ``(I) has a disproportionate patient percentage during such 
        cost reporting period (as determined by the Secretary under 
        subsection (d)(5)(F)(vi) as if the hospital were a subsection 
        (d) hospital) of at least 25 percent, or
          ``(II) is located in a State for which no payment is made 
        under the State plan under title XIX for days of inpatient 
        hospital services furnished to any individual in excess of the 
        limit on the number of days of such services furnished to the 
        individual for which payment may be made under this title.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to discharges occurring during cost reporting 
        periods beginning on or after October 1, 1995.
  (c) Treatment of Certain Long-Term Care Hospitals Located Within 
Other Hospitals.--
          (1) In general.--Section 1886(d)(1)(B) (42 U.S.C. 
        1395ww(d)(1)(B)) is amended in the matter following clause (v) 
        by striking the period and inserting the following: ``, or a 
        hospital classified by the Secretary as a long-term care 
        hospital on or before September 30, 1995, and located in the 
        same building as, or on the same campus as, another 
        hospital.''.
          (2) Study by review commission.--Not later than 12 months 
        after the date a majority of the members of the Medicare 
        Payment Review Commission are first appointed, the Commission 
        shall submit a report to Congress containing recommendations 
        for appropriate revisions in the treatment of long-term care 
        hospitals located in the same building as or on the same campus 
        as another hospital for purposes of section 1886 of the Social 
        Security Act.
          (3) Effective date.--The amendment made by paragraph (1) 
        shall apply to discharges occurring on or after October 1, 
        1995.
  (d) Study of Prospective Payment System for Rehabilitation Hospitals 
and Units.--
          (1) In general.--After consultation with the Prospective 
        Payment Assessment Commission, providers of rehabilitation 
        services, and other appropriate parties, the Secretary of 
        Health and Human Services shall submit to Congress, by not 
        later than June 1, 1996, a report on the advisability and 
        feasibility of providing for payment based on a prospective 
        payment system for inpatient services of rehabilitation 
        hospitals and units under the medicare program.
          (2) Items included.--The report shall include the following:
                  (A) The available and preferred systems of 
                classifying rehabilitation patients relative to 
                duration and intensity of inpatient services, including 
                the use of functional-related groups (FRGs).
                  (B) The means of calculating medicare program 
                payments to reflect such patient requirements.
                  (C) Other appropriate adjustments which should be 
                made, such as for geographic variations in wages and 
                other costs and outliers.
                  (D) A timetable under which such a system might be 
                introduced.
                  (E) Whether such a system should be applied to other 
                types of providers of inpatient rehabilitation 
                services.

SEC. 15506. REDUCTION IN PAYMENTS TO HOSPITALS FOR ENROLLEES' BAD 
                    DEBTS.

  (a) In General.--Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is 
amended by adding at the end the following new subparagraph:
  ``(T)(i) In determining such reasonable costs for hospitals, the 
amount of bad debts otherwise treated as allowable costs which are 
attributable to the deductibles and coinsurance amounts under this 
title shall be reduced by--
          ``(I) 75 percent for cost reporting periods beginning during 
        fiscal year 1996,
          ``(II) 60 percent for cost reporting periods beginning during 
        fiscal year 1997, and
          ``(III) 50 percent for subsequent cost reporting periods.
  ``(ii) Clause (i) shall not apply with respect to bad debt of a 
hospital described in section 1886(d)(1)(B)(iv) if the debt is 
attributable to uncollectable deductible and coinsurance payments owed 
by individuals enrolled in a State plan under title XIX or under the 
MediGrant program under title XXI.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to hospital cost reporting periods beginning on or after October 1, 
1995.

SEC. 15507. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

  Effective as if included in the enactment of OBRA-1989, section 
6011(d) of such Act (as amended by section 13505 of OBRA-1993) is 
amended by striking ``and shall expire September 30, 1994''.

SEC. 15508. CONFORMING AMENDMENT TO CERTIFICATION OF CHRISTIAN SCIENCE 
                    PROVIDERS.

  (a) Hospitals.--Section 1861(e) (42 U.S.C. 1395x(e)) is amended in 
the sixth sentence by inserting after ``Massachusetts,'' the following: 
``or by the Commission for Accreditation of Christian Science Nursing 
Organizations/Facilities, Inc.,''.
  (b) Skilled Nursing Facilities.--Section 1861(y)(1) is amended by 
inserting after ``Massachusetts,'' the following: ``or by the 
Commission for Accreditation of Christian Science Nursing 
Organizations/Facilities, Inc.,''.

           Subpart B--Provisions Relating to Rural Hospitals

SEC. 15511. SOLE COMMUNITY HOSPITALS.

  (a) Update.--Section 1886(b)(3)(B)(iv) (42 U.S.C. 
1395ww(b)(3)(B)(iv)) is amended--
          (A) in subclause (III), by striking ``and'' at the end; and
          (B) by striking subclause (IV) and inserting the following:
          ``(IV) for each of the fiscal years 1996 through 2000, the 
        market basket percentage increase minus 1 percentage points, 
        and
          ``(V) for fiscal year 2001 and each subsequent fiscal year, 
        the applicable percentage increase under clause (i).''.
  (b) Study of Impact of Sole Community Hospital Designations.--
          (1) Study.--The Medicare Payment Review Commission shall 
        conduct a study of the impact of the designation of hospitals 
        as sole community hospitals under the medicare program on the 
        delivery of health care services to individuals in rural areas, 
        and shall include in the study an analysis of the 
        characteristics of the hospitals designated as such sole 
        community hospitals under the program.
          (2) Report.--Not later than 12 months after the date a 
        majority of the members of the Commission are first appointed, 
        the Commission shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 15512. CLARIFICATION OF TREATMENT OF EAC AND RPC HOSPITALS.

  Paragraphs (1)(A)(i) and (2)(A)(i) of section 1820(i) (42 U.S.C. 
1395i-4(i)) are each amended by striking the semicolon at the end and 
inserting the following: ``, or in a State which the Secretary finds 
would receive a grant under such subsection during a fiscal year if 
funds were appropriated for grants under such subsection for the fiscal 
year;''.

SEC. 15513. ESTABLISHMENT OF RURAL EMERGENCY ACCESS CARE HOSPITALS.

  (a) In General.--Section 1861 (42 U.S.C. 1395x) is amended by adding 
at the end the following new subsection:

  ``Rural Emergency Access Care Hospital; Rural Emergency Access Care 
                           Hospital Services

  ``(oo)(1) The term `rural emergency access care hospital' means, for 
a fiscal year, a facility with respect to which the Secretary finds the 
following:
          ``(A) The facility is located in a rural area (as defined in 
        section 1886(d)(2)(D)).
          ``(B) The facility was a hospital under this title at any 
        time during the 5-year period that ends on the date of the 
        enactment of this subsection.
          ``(C) The facility is in danger of closing due to low 
        inpatient utilization rates and operating losses, and the 
        closure of the facility would limit the access to emergency 
        services of individuals residing in the facility's service 
        area.
          ``(D) The facility has entered into (or plans to enter into) 
        an agreement with a hospital with a participation agreement in 
        effect under section 1866(a), and under such agreement the 
        hospital shall accept patients transferred to the hospital from 
        the facility and receive data from and transmit data to the 
        facility.
          ``(E) There is a practitioner who is qualified to provide 
        advanced cardiac life support services (as determined by the 
        State in which the facility is located) on-site at the facility 
        on a 24-hour basis.
          ``(F) A physician is available on-call to provide emergency 
        medical services on a 24-hour basis.
          ``(G) The facility meets such staffing requirements as would 
        apply under section 1861(e) to a hospital located in a rural 
        area, except that--
                  ``(i) the facility need not meet hospital standards 
                relating to the number of hours during a day, or days 
                during a week, in which the facility must be open, 
                except insofar as the facility is required to provide 
                emergency care on a 24-hour basis under subparagraphs 
                (E) and (F); and
                  ``(ii) the facility may provide any services 
                otherwise required to be provided by a full-time, on-
                site dietitian, pharmacist, laboratory technician, 
                medical technologist, or radiological technologist on a 
                part-time, off-site basis.
          ``(H) The facility meets the requirements applicable to 
        clinics and facilities under subparagraphs (C) through (J) of 
        paragraph (2) of section 1861(aa) and of clauses (ii) and (iv) 
        of the second sentence of such paragraph (or, in the case of 
        the requirements of subparagraph (E), (F), or (J) of such 
        paragraph, would meet the requirements if any reference in such 
        subparagraph to a `nurse practitioner' or to `nurse 
        practitioners' were deemed to be a reference to a `nurse 
        practitioner or nurse' or to `nurse practitioners or nurses'); 
        except that in determining whether a facility meets the 
        requirements of this subparagraph, subparagraphs (E) and (F) of 
        that paragraph shall be applied as if any reference to a 
        `physician' is a reference to a physician as defined in section 
        1861(r)(1).
  ``(2) The term `rural emergency access care hospital services' means 
the following services provided by a rural emergency access care 
hospital and furnished to an individual over a continuous period not to 
exceed 24 hours (except that such services may be furnished over a 
longer period in the case of an individual who is unable to leave the 
hospital because of inclement weather):
          ``(A) An appropriate medical screening examination (as 
        described in section 1867(a)).
          ``(B) Necessary stabilizing examination and treatment 
        services for an emergency medical condition and labor (as 
        described in section 1867(b)).''.
  (b) Requiring Rural Emergency Access Care Hospitals To Meet Hospital 
Anti-Dumping Requirements.--Section 1867(e)(5) (42 U.S.C. 1395dd(e)(5)) 
is amended by striking ``1861(mm)(1))'' and inserting ``1861(mm)(1)) 
and a rural emergency access care hospital (as defined in section 
1861(oo)(1))''.
  (c) Reference to Payment Provisions Under Part B.--For provisions 
relating to payment for rural emergency access care hospital services 
under part B, see section 15607.
  (d) Effective Date.--The amendments made by this section shall apply 
to fiscal years beginning on or after October 1, 1995.

SEC. 15514. CLASSIFICATION OF RURAL REFERRAL CENTERS.

  (a) Prohibiting Denial of Request for Reclassification on Basis of 
Comparability of Wages.--
          (1) In general.--Section 1886(d)(10)(D) (42 U.S.C. 
        1395ww(d)(10)(D)) is amended--
                  (A) by redesignating clause (iii) as clause (iv); and
                  (B) by inserting after clause (ii) the following new 
                clause:
  ``(iii) Under the guidelines published by the Secretary under clause 
(i), in the case of a hospital which is classified by the Secretary as 
a rural referral center under paragraph (5)(C), the Board may not 
reject the application of the hospital under this paragraph on the 
basis of any comparison between the average hourly wage of the hospital 
and the average hourly wage of hospitals in the area in which it is 
located.''.
          (2) Effective date.--Notwithstanding section 
        1886(d)(10)(C)(ii) of the Social Security Act, a hospital may 
        submit an application to the Medicare Geographic Classification 
        Review Board during the 30-day period beginning on the date of 
        the enactment of this Act requesting a change in its 
        classification for purposes of determining the area wage index 
        applicable to the hospital under section 1886(d)(3)(D) of such 
        Act for fiscal year 1997, if the hospital would be eligible for 
        such a change in its classification under the standards 
        described in section 1886(d)(10)(D) (as amended by paragraph 
        (1)) but for its failure to meet the deadline for applications 
        under section 1886(d)(10)(C)(ii).
  (b) Continuing Treatment of Previously Designated Centers.--Any 
hospital classified as a rural referral center by the Secretary of 
Health and Human Services under section 1886(d)(5)(C) of the Social 
Security Act for fiscal year 1994 shall be classified as such a rural 
referral center for fiscal year 1996 and each subsequent fiscal year.

SEC. 15515. FLOOR ON AREA WAGE INDEX.

  (a) In General.--For purposes of section 1886(d)(3)(E) of the Social 
Security Act for discharges occurring on or after October 1, 1995, the 
area wage index applicable under such section to any hospital which is 
not located in a rural area (as defined in section 1886(d)(2)(D) of 
such Act) may not be less than the average of the area wage indices 
applicable under such section to hospitals located in rural areas in 
the State in which the hospital is located.
  (b) Budget-Neutrality in Implementation.--The Secretary of Health and 
Human Services shall adjust the area wage indices referred to in 
subsection (a) for hospitals not described in such subsection in a 
manner which assures that the aggregate payments made under section 
1886(d) of the Social Security Act in a fiscal year for the operating 
costs of inpatient hospital services are not greater or less than those 
which would have been made in the year if this section did not apply.

             PART 2--PAYMENTS TO SKILLED NURSING FACILITIES

SEC. 15521. PAYMENTS FOR ROUTINE SERVICE COSTS.

  (a) Clarification of Definition of Routine Service Costs.--Section 
1888 (42 U.S.C. 1395yy) is amended by adding at the end the following 
new subsection:
  ``(e) For purposes of this section, the `routine service costs' of a 
skilled nursing facility are all costs which are attributable to 
nursing services, room and board, administrative costs, other overhead 
costs, and all other ancillary services (including supplies and 
equipment), excluding costs attributable to covered non-routine 
services subject to payment limits under section 1888A.''.
  (b) Conforming Amendment.--Section 1888 (42 U.S.C. 1395yy) is amended 
in the heading by inserting ``and certain ancillary'' after 
``service''.

SEC. 15522. INCENTIVES FOR COST EFFECTIVE MANAGEMENT OF COVERED NON-
                    ROUTINE SERVICES.

  (a) In General.--Title XVIII is amended by inserting after section 
1888 the following new section:
   ``incentives for cost-effective management of covered non-routine 
                 services of skilled nursing facilities
  ``Sec. 1888A. (a) Definitions.--For purposes of this section:
          ``(1) Covered non-routine services.--The term `covered non-
        routine services' means post-hospital extended care services 
        consisting of any of the following:
                  ``(A) Physical or occupational therapy or speech-
                language pathology services, or respiratory therapy, 
                including supplies and support services incident to 
                such services and therapy.
                  ``(B) Prescription drugs.
                  ``(C) Complex medical equipment.
                  ``(D) Intravenous therapy and solutions (including 
                enteral and parenteral nutrients, supplies, and 
                equipment).
                  ``(E) Radiation therapy.
                  ``(F) Diagnostic services, including laboratory, 
                radiology (including computerized tomography services 
                and imaging services), and pulmonary services.
          ``(2) SNF market basket percentage increase.--The term `SNF 
        market basket percentage increase' for a fiscal year means a 
        percentage equal to the percentage increase in routine service 
        cost limits for the year under section 1888(a).
          ``(3) Stay.--The term `stay' means, with respect to an 
        individual who is a resident of a skilled nursing facility, a 
        period of continuous days during which the facility provides 
        extended care services for which payment may be made under this 
        title with respect to the individual during the individual's 
        spell of illness.
  ``(b) New Payment Method for Covered Non-Routine Services.--
          ``(1) In general.--Subject to subsection (c), a skilled 
        nursing facility shall receive interim payments under this 
        title for covered non-routine services furnished to an 
        individual during a cost reporting period beginning during a 
        fiscal year (after fiscal year 1996) in an amount equal to the 
        reasonable cost of providing such services in accordance with 
        section 1861(v). The Secretary may adjust such payments if the 
        Secretary determines (on the basis of such estimated 
        information as the Secretary considers appropriate) that 
        payments to the facility under this paragraph for a cost 
        reporting period would substantially exceed the cost reporting 
        period limit determined under subsection (c)(1)(B).
          ``(2) Responsibility of skilled nursing facility to manage 
        billings.--
                  ``(A) Clarification relating to part a billing.--In 
                the case of a covered non-routine service furnished to 
                an individual who (at the time the service is 
                furnished) is a resident of a skilled nursing facility 
                who is entitled to coverage under section 1812(a)(2) 
                for such service, the skilled nursing facility shall 
                submit a claim for payment under this title for such 
                service under part A (without regard to whether or not 
                the item or service was furnished by the facility, by 
                others under arrangement with them made by the 
                facility, under any other contracting or consulting 
                arrangement, or otherwise).
                  ``(B) Part b billing.--In the case of a covered non-
                routine service (other than a portable X-ray or 
                portable electrocardiogram treated as a physician's 
                service for purposes of section 1848(j)(3)) furnished 
                to an individual who (at the time the service is 
                furnished) is a resident of a skilled nursing facility 
                who is not entitled to coverage under section 
                1812(a)(2) for such service but is entitled to coverage 
                under part B for such service, the skilled nursing 
                facility shall submit a claim for payment under this 
                title for such service under part B (without regard to 
                whether or not the item or service was furnished by the 
                facility, by others under arrangement with them made by 
                the facility, under any other contracting or consulting 
                arrangement, or otherwise).
                  ``(C) Maintaining records on services furnished to 
                residents.--Each skilled nursing facility receiving 
                payments for extended care services under this title 
                shall document on the facility's cost report all 
                covered non-routine services furnished to all residents 
                of the facility to whom the facility provided extended 
                care services for which payment was made under part A 
                during a fiscal year (beginning with fiscal year 1996) 
                (without regard to whether or not the services were 
                furnished by the facility, by others under arrangement 
                with them made by the facility, under any other 
                contracting or consulting arrangement, or otherwise).
  ``(c) Reconciliation of Amounts.--
          ``(1) Limit based on per stay limit and number of stays.--
                  ``(A) In general.--If a skilled nursing facility has 
                received aggregate payments under subsection (b) for 
                covered non-routine services during a cost reporting 
                period beginning during a fiscal year in excess of an 
                amount equal to the cost reporting period limit 
                determined under subparagraph (B), the Secretary shall 
                reduce the payments made to the facility with respect 
                to such services for cost reporting periods beginning 
                during the following fiscal year in an amount equal to 
                such excess. The Secretary shall reduce payments under 
                this subparagraph at such times and in such manner 
                during a fiscal year as the Secretary finds necessary 
                to meet the requirement of this subparagraph.
                  ``(B) Cost reporting period limit.--The cost 
                reporting period limit determined under this 
                subparagraph is an amount equal to the product of--
                          ``(i) the per stay limit applicable to the 
                        facility under subsection (d) for the period; 
                        and
                          ``(ii) the number of stays beginning during 
                        the period for which payment was made to the 
                        facility for such services.
                  ``(C) Prospective reduction in payments.--In addition 
                to the process for reducing payments described in 
                subparagraph (A), the Secretary may reduce payments 
                made to a facility under this section during a cost 
                reporting period if the Secretary determines (on the 
                basis of such estimated information as the Secretary 
                considers appropriate) that payments to the facility 
                under this section for the period will substantially 
                exceed the cost reporting period limit for the period 
                determined under this paragraph.
          ``(2) Incentive payments.--
                  ``(A) In general.--If a skilled nursing facility has 
                received aggregate payments under subsection (b) for 
                covered non-routine services during a cost reporting 
                period beginning during a fiscal year in an amount that 
                is less than the amount determined under paragraph 
                (1)(B), the Secretary shall pay the skilled nursing 
                facility in the following fiscal year an incentive 
                payment equal to 50 percent of the difference between 
                such amounts, except that the incentive payment may not 
                exceed 5 percent of the aggregate payments made to the 
                facility under subsection (b) for the previous fiscal 
                year (without regard to subparagraph (B)).
                  ``(B) Installment incentive payments.--The Secretary 
                may make installment payments during a fiscal year to a 
                skilled nursing facility based on the estimated 
                incentive payment that the facility would be eligible 
                to receive with respect to such fiscal year.
  ``(d) Determination of Facility Per Stay Limit.--
          ``(1) Limit for fiscal year 1997.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), the Secretary shall establish separate per stay 
                limits for hospital-based and freestanding skilled 
                nursing facilities for the 12-month cost reporting 
                period beginning during fiscal year 1997 that are equal 
                to the sum of--
                          ``(i) 50 percent of the facility-specific 
                        stay amount for the facility (as determined 
                        under subsection (e)) for the last 12-month 
                        cost reporting period ending on or before 
                        September 30, 1994, increased (in a compounded 
                        manner) by the SNF market basket percentage 
                        increase for fiscal years 1995 through 1997; 
                        and
                          ``(ii) 50 percent of the average of all 
                        facility-specific stay amounts for all 
                        hospital-based facilities or all freestanding 
                        facilities (whichever is applicable) during the 
                        cost reporting period described in clause (i), 
                        increased (in a compounded manner) by the SNF 
                        market basket percentage increase for fiscal 
                        years 1995 through 1997.
                  ``(B) Facilities not having 1994 cost reporting 
                period.--In the case of a skilled nursing facility for 
                which payments were not made under this title for 
                covered non-routine services for the last 12-month cost 
                reporting period ending on or before September 30, 
                1994, the per stay limit for the 12-month cost 
                reporting period beginning during fiscal year 1997 
                shall be twice the amount determined under subparagraph 
                (A)(ii).
          ``(2) Limit for subsequent fiscal years.--The per stay limit 
        for a skilled nursing facility for a 12-month cost reporting 
        period beginning during a fiscal year after fiscal year 1997 is 
        equal to the per stay limit established under this subsection 
        for the 12-month cost reporting period beginning during the 
        previous fiscal year, increased by the SNF market basket 
        percentage increase for such subsequent fiscal year minus 2 
        percentage points.
          ``(3) Rebasing of amounts.--
                  ``(A) In general.--The Secretary shall provide for an 
                update to the facility-specific amounts used to 
                determine the per stay limits under this subsection for 
                cost reporting periods beginning on or after October 1, 
                1999, and every 2 years thereafter.
                  ``(B) Treatment of facilities not having rebased cost 
                reporting periods.--Paragraph (1)(B) shall apply with 
                respect to a skilled nursing facility for which 
                payments were not made under this title for covered 
                non-routine services for the 12-month cost reporting 
                period used by the Secretary to update facility-
                specific amounts under subparagraph (A) in the same 
                manner as such paragraph applies with respect to a 
                facility for which payments were not made under this 
                title for covered non-routine services for the last 12-
                month cost reporting period ending on or before 
                September 30, 1994.
  ``(e) Determination of Facility-Specific Stay Amounts.--The 
`facility-specific stay amount' for a skilled nursing facility for a 
cost reporting period is the sum of--
          ``(1) the average amount of payments made to the facility 
        under part A during the period which are attributable to 
        covered non-routine services furnished during a stay; and
          ``(2) the Secretary's best estimate of the average amount of 
        payments made under part B during the period for covered non-
        routine services furnished to all residents of the facility to 
        whom the facility provided extended care services for which 
        payment was made under part A during the period (without regard 
        to whether or not the services were furnished by the facility, 
        by others under arrangement with them made by the facility, 
        under any other contracting or consulting arrangement, or 
        otherwise), as estimated by the Secretary.
  ``(f) Intensive Nursing or Therapy Needs.--
          ``(1) In general.--In applying subsection (b) to covered non-
        routine services furnished during a stay beginning during a 
        cost reporting period beginning during a fiscal year to a 
        resident of a skilled nursing facility who requires intensive 
        nursing or therapy services, the per stay limit determined for 
        the fiscal year under the methodology for such resident shall 
        be the per stay limit developed under paragraph (2) instead of 
        the per stay limit determined under subsection (d)(1)(A).
          ``(2) Per stay limit for intensive need residents.--Not later 
        than June 30, 1996, the Secretary, after consultation with the 
        Medicare Payment Review Commission and skilled nursing facility 
        experts, shall develop and publish a methodology for 
        determining on an annual basis a per stay limit for residents 
        of a skilled nursing facility who require intensive nursing or 
        therapy services.
          ``(3) Budget neutrality.--The Secretary shall adjust payments 
        under subsection (b) in a manner that ensures that total 
        payments for covered non-routine services under this section 
        are not greater or less than total payments for such services 
        would have been but for the application of paragraph (1).
  ``(g) Special Treatment for Medicare Low Volume Skilled Nursing 
Facilities.--This section shall not apply with respect to a skilled 
nursing facility for which payment is made for routine service costs 
during a cost reporting period on the basis of prospective payments 
under section 1888(d).
  ``(h) Exceptions and Adjustments to Limits.--
          ``(1) In general.--The Secretary may make exceptions and 
        adjustments to the cost reporting limits applicable to a 
        skilled nursing facility under subsection (c)(1)(B) for a cost 
        reporting period, except that the total amount of any 
        additional payments made under this section for covered non-
        routine services during the cost reporting period as a result 
        of such exceptions and adjustments may not exceed 5 percent of 
        the aggregate payments made to all skilled nursing facilities 
        for covered non-routine services during the cost reporting 
        period (determined without regard to this paragraph).
          ``(2) Budget neutrality.--The Secretary shall adjust payments 
        under subsection (b) in a manner that ensures that total 
        payments for covered non-routine services under this section 
        are not greater or less than total payments for such services 
        would have been but for the application of paragraph (1).
  ``(i) Special Rule for X-Ray Services.--Before furnishing a covered 
non-routine service consisting of an X-ray service for which payment 
may be made under part A or part B to a resident, a skilled nursing 
facility shall consider whether furnishing the service through a 
provider of portable X-ray services would be appropriate, taking into 
account the cost effectiveness of the service and the convenience to 
the resident.''.
  (b) Conforming Amendment.--Section 1814(b) (42 U.S.C. 1395f(b)) is 
amended in the matter preceding paragraph (1) by striking ``1813 and 
1886'' and inserting ``1813, 1886, 1888, and 1888A''.

SEC. 15523. PAYMENTS FOR ROUTINE SERVICE COSTS.

  (a) Maintaining Savings Resulting From Temporary Freeze on Payment 
Increases.--
          (1) Basing updates to per diem cost limits on limits for 
        fiscal year 1993.--
                  (A) In general.--The last sentence of section 1888(a) 
                (42 U.S.C. 1395yy(a)) is amended by inserting before 
                the period at the end the following: ``(except that 
                such updates may not take into account any changes in 
                the routine service costs of skilled nursing facilities 
                occurring during cost reporting periods which began 
                during fiscal year 1994 or fiscal year 1995)''.
                  (B) No exceptions permitted based on amendment.--The 
                Secretary of Health and Human Services shall not 
                consider the amendment made by subparagraph (A) in 
                making any adjustments pursuant to section 1888(c) of 
                the Social Security Act.
          (2) Payments determined on prospective basis.--Any change 
        made by the Secretary of Health and Human Services in the 
        amount of any prospective payment paid to a skilled nursing 
        facility under section 1888(d) of the Social Security Act for 
        cost reporting periods beginning on or after October 1, 1995, 
        may not take into account any changes in the costs of services 
        occurring during cost reporting periods which began during 
        fiscal year 1994 or fiscal year 1995.
  (b) Establishment of Schedule for Making Adjustments to Limits.--
Section 1888(c) (42 U.S.C. 1395yy(c)) is amended by striking the period 
at the end of the second sentence and inserting ``, and may only make 
adjustments under this subsection with respect to a facility which 
applies for an adjustment during an annual application period 
established by the Secretary.''.
  (c) Limitation on Aggregate Increase in Payments Resulting from 
Adjustments to Limits.--Section 1888(c) (42 U.S.C. 1395yy(c)) is 
amended--
          (1) by striking ``(c) The Secretary'' and inserting ``(c)(1) 
        Subject to paragraph (2), the Secretary''; and
          (2) by adding at the end the following new paragraph:
  ``(2) The Secretary may not make any adjustments under this 
subsection in the limits set forth in subsection (a) for a cost 
reporting period beginning during a fiscal year to the extent that the 
total amount of the additional payments made under this title as a 
result of such adjustments is greater than an amount equal to--
          ``(A) for cost reporting periods beginning during fiscal year 
        1997, the total amount of the additional payments made under 
        this title as a result of adjustments under this subsection for 
        cost reporting periods beginning during fiscal year 1996 
        increased by the SNF market basket percentage increase (as 
        defined in section 1888A(e)(3)) for fiscal year 1997; and
          ``(B) for cost reporting periods beginning during a 
        subsequent fiscal year, the amount determined under this 
        paragraph for the previous fiscal year increased by the SNF 
        market basket percentage increase for such subsequent fiscal 
        year.''.
  (d) Imposition of Limits For All Cost Reporting Periods.--Section 
1888(a) (42 U.S.C. 1395yy(a)) is amended in the matter preceding 
paragraph (1) by inserting after ``extended care services'' the 
following: ``(for any cost reporting period for which payment is made 
under this title to the skilled nursing facility for such services)''.

SEC. 15524. REDUCTIONS IN PAYMENT FOR CAPITAL-RELATED COSTS.

  Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amended by section 
15506, is amended by adding at the end the following new subparagraph:
  ``(U) Such regulations shall provide that, in determining the amount 
of the payments that may be made under this title with respect to all 
the capital-related costs of skilled nursing facilities, the Secretary 
shall reduce the amounts of such payments otherwise established under 
this title by 15 percent for payments attributable to portions of cost 
reporting periods occurring during fiscal years 1996 through 2002.''.

SEC. 15525. TREATMENT OF ITEMS AND SERVICES PAID FOR UNDER PART B.

  (a) Requiring Payment for All Items and Services to Be Made to 
Facility.--
          (1) In general.--The first sentence of section 1842(b)(6) (42 
        U.S.C. 1395u(b)(6)) is amended--
                  (A) by striking ``and (D)'' and inserting ``(D)''; 
                and
                  (B) by striking the period at the end and inserting 
                the following: ``, and (E) in the case of an item or 
                service (other than physicians' services and other than 
                a portable X-ray or portable electrocardiogram treated 
                as a physician's service for purposes of section 
                1848(j)(3)) furnished to an individual who (at the time 
                the item or service is furnished) is a resident of a 
                skilled nursing facility, payment shall be made to the 
                facility (without regard to whether or not the item or 
                service was furnished by the facility, by others under 
                arrangement with them made by the facility, or 
                otherwise).''.
          (2) Exclusion for items and services not billed by 
        facility.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
                  (A) by striking ``or'' at the end of paragraph (14);
                  (B) by striking the period at the end of paragraph 
                (15) and inserting ``; or''; and
                  (C) by inserting after paragraph (15) the following 
                new paragraph:
          ``(16) where such expenses are for covered non-routine 
        services (as defined in section 1888A(a)(1)) (other than a 
        portable X-ray or portable electrocardiogram treated as a 
        physician's service for purposes of section 1848(j)(3)) 
        furnished to an individual who is a resident of a skilled 
        nursing facility and for which the claim for payment under this 
        title is not submitted by the facility.''.
          (3) Conforming amendment.--Section 1832(a)(1) (42 U.S.C. 
        1395k(a)(1)) is amended by striking ``(2);'' and inserting 
        ``(2) and section 1842(b)(6)(E);''.
  (b) Reduction in Payments for Items and Services Furnished by or 
Under Arrangements With Facilities.--Section 1861(v)(1) (42 U.S.C. 
1395x(v)(1)), as amended by sections 15506 and 15524, is amended by 
adding at the end the following new subparagraph:
  ``(V) In the case of an item or service furnished by a skilled 
nursing facility (or by others under arrangement with them made by a 
skilled nursing facility) for which payment is made under part B in an 
amount determined in accordance with section 1833(a)(2)(B), the 
Secretary shall reduce the reasonable cost for such item or service 
otherwise determined under clause (i)(I) of such section by 5.8 percent 
for payments attributable to portions of cost reporting periods 
occurring during fiscal years 1996 through 2002.''.

SEC. 15526. CERTIFICATION OF FACILITIES MEETING REVISED NURSING HOME 
                    REFORM STANDARDS.

  (a) In General.--Section 1819(a)(3) (42 U.S.C. 1395i-3(a)(3)) is 
amended to read as follows:
          ``(3)(A) is certified by the Secretary as meeting the 
        standards established under subsection (b), or (B) is a State-
        certified facility (as defined in subsection (d)).''.
  (b) Requirements Described.--Section 1819 (42 U.S.C. 1395i-3) is 
amended by striking subsections (b) through (i) and inserting the 
following:
  ``(b) Standards for and Certification of Facilities.--
          ``(1) Standards for facilities.--
                  ``(A) In general.--The Secretary shall provide for 
                the establishment and maintenance of standards 
                consistent with the contents described in subparagraph 
                (B) for skilled nursing facilities which furnish 
                services for which payment may be made under this 
                title.
                  ``(B) Contents of standards.--The standards 
                established for facilities under this paragraph shall 
                contain provisions relating to the following items:
                          ``(i) The treatment of resident medical 
                        records.
                          ``(ii) Policies, procedures, and bylaws for 
                        operation.
                          ``(iii) Quality assurance systems.
                          ``(iv) Resident assessment procedures, 
                        including care planning and outcome evaluation.
                          ``(v) The assurance of a safe and adequate 
                        physical plant for the facility.
                          ``(vi) Qualifications for staff sufficient to 
                        provide adequate care.
                          ``(vii) Utilization review.
                          ``(viii) The protection and enforcement of 
                        resident rights described in subparagraph (C).
                  ``(C) Resident rights described.--The resident rights 
                described in this subparagraph are the rights of 
                residents to the following:
                          ``(i) To exercise the individual's rights as 
                        a resident of the facility and as a citizen or 
                        resident of the United States.
                          ``(ii) To receive notice of rights and 
                        services.
                          ``(iii) To be protected against the misuse of 
                        resident funds.
                          ``(iv) To be provided privacy and 
                        confidentiality.
                          ``(v) To voice grievances.
                          ``(vi) To examine the results of inspections 
                        under the certification program.
                          ``(vii) To refuse to perform services for the 
                        facility.
                          ``(viii) To be provided privacy in 
                        communications and to receive mail.
                          ``(ix) To have the facility provide immediate 
                        access to any resident by any representative of 
                        the certification program, the resident's 
                        individual physician, the State long term care 
                        ombudsman, and any person the resident has 
                        designated as a visitor.
                          ``(x) To retain and use personal property.
                          ``(xi) To be free from abuse, including 
                        verbal, sexual, physical and mental abuse, 
                        corporal punishment, and involuntary seclusion.
                          ``(xii) To be provided with prior written 
                        notice of a pending transfer or discharge.
                  ``(D) Requiring notice and comment.--The standards 
                established for facilities under this paragraph may 
                only take effect after the Secretary has provided the 
                public with notice and an opportunity for comment.
          ``(2) Certification program.--
                  ``(A) In general.--The Secretary shall provide for 
                the establishment and operation of a program consistent 
                with the requirements of subparagraph (B) for the 
                certification of skilled nursing facilities which meet 
                the standards established under paragraph (1) and the 
                decertification of facilities which fail to meet such 
                standards.
                  ``(B) Requirements for program.--In addition to any 
                other requirements the Secretary may impose, in 
                establishing and operating the certification program 
                under subparagraph (A), the Secretary shall ensure the 
                following:
                          ``(i) The Secretary shall ensure public 
                        access (as defined by the Secretary) to the 
                        certification program's evaluations of 
                        participating facilities, including compliance 
                        records and enforcement actions and other 
                        reports by the Secretary regarding the 
                        ownership, compliance histories, and services 
                        provided by certified facilities.
                          ``(ii) Not less often than every 4 years, the 
                        Secretary shall audit its expenditures under 
                        the program, through an entity designated by 
                        the Secretary which is not affiliated with the 
                        program, as designated by the Secretary.
  ``(c) Intermediate Sanction Authority.--
          ``(1) Authority.--In addition to any other authority, where 
        the Secretary determines that a nursing facility which is 
        certified for participation under this title (whether certified 
        by the Secretary as meeting the standards established under 
        subsection (b) or a State-ceritified facility) no longer or 
        does not substantially meet the requirements for such a 
        facility under this title as specified under subsection (b) and 
        further determines that the facility's deficiencies--
                  ``(A) immediately jeopardize the health and safety of 
                its residents, the Secretary shall at least provide for 
                the termination of the facility's certification for 
                participation under this title, or
                  ``(B) do not immediately jeopardize the health and 
                safety of its residents, the Secretary may, in lieu of 
                providing for terminating the facility's certification 
                for participation under the plan, provide lesser 
                sanctions including one that provides that no payment 
                will be made under this title with respect to any 
                individual admitted to such facility after a date 
                specified by the Secretary.
          ``(2) Notice.--The Secretary shall not make such a decision 
        with respect to a facility until the facility has had a 
        reasonable opportunity, following the initial determination 
        that it no longer or does not substantially meet the 
        requirements for such a facility under this title, to correct 
        its deficiencies, and, following this period, has been given 
        reasonable notice and opportunity for a hearing.
          ``(3) Effectiveness.--The Secretary's decision to deny 
        payment may be made effective only after such notice to the 
        public and to the facility as may be provided for by the 
        Secretary, and its effectiveness shall terminate (A) when the 
        Secretary finds that the facility is in substantial compliance 
        (or is making good faith efforts to achieve substantial 
        compliance) with the requirements for such a facility under 
        this title, or (B) in the case described in paragraph (1)(B), 
        with the end of the eleventh month following the month such 
        decision is made effective, whichever occurs first. If a 
        facility to which clause (B) of the previous sentence applies 
        still fails to substantially meet the provisions of the 
        respective section on the date specified in such clause, the 
        Secretary shall terminate such facility's certification for 
        participation under this title effective with the first day of 
        the first month following the month specified in such clause.
  ``(d) State-Certified Facility Defined.--In subsection (a), a `State-
certified facility' means a facility licensed or certified as a skilled 
nursing facility by the State in which it is located, or a facility 
which otherwise meets the requirements applicable to providers of 
nursing facility services under the State plan under title XIX or the 
MediGrant program under title XXI.''.
  (c) Conforming Amendments.--(1) Section 1861(v)(1)(E) (42 U.S.C. 
1395x(v)(1)(E)) is amended by striking the second sentence.
  (2) Section 1864 (42 U.S.C. 1395aa) is amended by striking subsection 
(d).
  (3) Section 1866(f)(1) (42 U.S.C. 1395cc(f)(1)) is amended by 
striking ``1819(c)(2)(E),''.
  (4) Section 1883(f) (42 U.S.C. 1395tt(f)) is amended--
          (A) in the second sentence, by striking ``such a hospital'' 
        and inserting ``a hospital which enters into an agreement with 
        the Secretary under this section''; and
          (B) by striking the first sentence.
  (d) Effective Date.--The amendments made by this section shall apply 
with respect to cost reporting periods beginning on or after October 1, 
1995.

SEC. 15527. MEDICAL REVIEW PROCESS.

  In order to ensure that medicare beneficiaries are furnished 
appropriate extended care services, the Secretary of Health and Human 
Services shall establish and implement a thorough medical review 
process to examine the effects of the amendments made by this part on 
the quality of extended care services furnished to medicare 
beneficiaries. In developing such a medical review process, the 
Secretary shall place a particular emphasis on the quality of non-
routine covered services for which payment is made under section 1888A 
of the Social Security Act.

SEC. 15528. REPORT BY MEDICARE PAYMENT REVIEW COMMISSION.

  Not later than October 1, 1997, the Medicare Payment Review 
Commission shall submit to Congress a report on the system under which 
payment is made under the medicare program for extended care services 
furnished by skilled nursing facilities, and shall include in the 
report the following:
          (1) An analysis of the effect of the methodology established 
        under section 1888A of the Social Security Act (as added by 
        section 15522) on the payments for, and the quality of, 
        extended care services under the medicare program.
          (2) An analysis of the advisability of determining the amount 
        of payment for covered non-routine services of facilities (as 
        described in such section) on the basis of the amounts paid for 
        such services when furnished by suppliers under part B of the 
        medicare program.
          (3) An analysis of the desirability of maintaining separate 
        limits for hospital-based and freestanding facilities in the 
        costs of extended care services recognized as reasonable under 
        the medicare program.
          (4) An analysis of the quality of services furnished by 
        skilled nursing facilities.
          (5) An analysis of the adequacy of the process and standards 
        used to provide exceptions to the limits described in paragraph 
        (3).

SEC. 15529. EFFECTIVE DATE.

  Except as otherwise provided in this part, the amendments made by 
this part shall apply to services furnished during cost reporting 
periods (or portions of cost reporting periods) beginning on or after 
October 1, 1996.

           Subtitle G--Provisions Relating to Medicare Part B

                        PART 1--PAYMENT REFORMS

SEC. 15601. PAYMENTS FOR PHYSICIANS' SERVICES.

  (a) Replacement of Volume Performance Standard With Sustainable 
Growth Rate.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is amended to read 
as follows:
  ``(f) Sustainable Growth Rate.--
          ``(1) Specification of growth rate.--
                  ``(A) Fiscal year 1996.--The sustainable growth rate 
                for all physicians' services for fiscal year 1996 shall 
                be equal to the product of--
                          ``(i) 1 plus the Secretary's estimate of the 
                        percentage change in the medicare economic 
                        index for 1996 (described in the fourth 
                        sentence of section 1842(b)(3)) (divided by 
                        100),
                          ``(ii) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from fiscal year 1995 to fiscal year 1996,
                          ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from fiscal year 1995 to fiscal year 1996, plus 
                        2 percentage points, and
                          ``(iv) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        fiscal year 1996 (compared with fiscal year 
                        1995) which will result from changes in law, 
                        determined without taking into account 
                        estimated changes in expenditures due to 
                        changes in the volume and intensity of 
                        physicians' services or changes in expenditures 
                        resulting from changes in the update to the 
                        conversion factor under subsection (d),
                minus 1 and multiplied by 100.
                  ``(B) Subsequent fiscal years.--The sustainable 
                growth rate for all physicians' services for fiscal 
                year 1997 and each subsequent fiscal year shall be 
                equal to the product of--
                          ``(i) 1 plus the Secretary's estimate of the 
                        percentage change in the medicare economic 
                        index for the fiscal year involved (described 
                        in the fourth sentence of section 1842(b)(3)) 
                        (divided by 100),
                          ``(ii) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in the 
                        average number of individuals enrolled under 
                        this part (other than private plan enrollees) 
                        from the previous fiscal year to the fiscal 
                        year involved,
                          ``(iii) 1 plus the Secretary's estimate of 
                        the projected percentage growth in real gross 
                        domestic product per capita (divided by 100) 
                        from the previous fiscal year to the fiscal 
                        year involved, plus 2 percentage points, and
                          ``(iv) 1 plus the Secretary's estimate of the 
                        percentage change (divided by 100) in 
                        expenditures for all physicians' services in 
                        the fiscal year (compared with the previous 
                        fiscal year) which will result from changes in 
                        law (including changes made by the Secretary in 
                        response to section 1895), determined without 
                        taking into account estimated changes in 
                        expenditures due to changes in the volume and 
                        intensity of physicians' services or changes in 
                        expenditures resulting from changes in the 
                        update to the conversion factor under 
                        subsection (d)(3),
                minus 1 and multiplied by 100.
          ``(2) Exclusion of services furnished to private plan 
        enrollees.--In this subsection, the term `physicians' services' 
        with respect to a fiscal year does not include services 
        furnished to an individual enrolled under this part who has 
        elected to receive benefits under this title for the fiscal 
        year through a MedicarePlus product offered under part C or 
        through enrollment with an eligible organization with a risk-
        sharing contract under section 1876.''.
  (b) Establishing Update to Conversion Factor to Match Spending Under 
Sustainable Growth Rate.--
          (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
        amended--
                  (A) by striking paragraph (2);
                  (B) by amending paragraph (3) to read as follows:
          ``(3) Update.--
                  ``(A) In general.--Subject to subparagraph (E), for 
                purposes of this section the update for a year 
                (beginning with 1997) is equal to the product of--
                          ``(i) 1 plus the Secretary's estimate of the 
                        percentage increase in the medicare economic 
                        index (described in the fourth sentence of 
                        section 1842(b)(3)) for the year (divided by 
                        100), and
                          ``(ii) 1 plus the Secretary's estimate of the 
                        update adjustment factor for the year (divided 
                        by 100),
                minus 1 and multiplied by 100.
                  ``(B) Update adjustment factor.--The `update 
                adjustment factor' for a year is equal to the quotient 
                of--
                          ``(i) the difference between (I) the sum of 
                        the allowed expenditures for physicians' 
                        services furnished during each of the years 
                        1995 through the year involved and (II) the sum 
                        of the amount of actual expenditures for 
                        physicians' services furnished during each of 
                        the years 1995 through the previous year; 
                        divided by
                          ``(ii) the Secretary's estimate of allowed 
                        expenditures for physicians' services furnished 
                        during the year.
                  ``(C) Determination of allowed expenditures.--For 
                purposes of subparagraph (B), allowed expenditures for 
                physicians' services shall be determined as follows (as 
                estimated by the Secretary):
                          ``(i) In the case of allowed expenditures for 
                        1995, such expenditures shall be equal to 
                        actual expenditures for services furnished 
                        during the 12-month period ending with June of 
                        1995.
                          ``(ii) In the case of allowed expenditures 
                        for 1996 and each subsequent year, such 
                        expenditures shall be equal to allowed 
                        expenditures for the previous year, increased 
                        by the sustainable growth rate under subsection 
                        (f) for the fiscal year which begins during the 
                        year.
                  ``(D) Determination of actual expenditures.--For 
                purposes of subparagraph (B), the amount of actual 
                expenditures for physicians' services furnished during 
                a year shall be equal to the amount of expenditures for 
                such services during the 12-month period ending with 
                June of the previous year.
                  ``(E) Restriction on variation from medicare economic 
                index.--Notwithstanding the amount of the update 
                adjustment factor determined under subparagraph (B) for 
                a year, the update in the conversion factor under this 
                paragraph for the year may not be--
                          ``(i) greater than 103 percent of 1 plus the 
                        Secretary's estimate of the percentage increase 
                        in the medicare economic index (described in 
                        the fourth sentence of section 1842(b)(3)) for 
                        the year (divided by 100); or
                          ``(ii) except as required to carry out 
                        section 1895, less than 93 percent of 1 plus 
                        the Secretary's estimate of the percentage 
                        increase in the medicare economic index 
                        (described in the fourth sentence of section 
                        1842(b)(3)) for the year (divided by 100).''; 
                        and
                  (C) by adding at the end the following new paragraph:
          ``(4) Reporting requirements.--
                  ``(A) In general.--Not later than November 1 of each 
                year (beginning with 1996), the Secretary shall 
                transmit to the Congress a report that describes the 
                update in the conversion factor for physicians' 
                services (as defined in subsection (f)(3)(A)) in the 
                following year.
                  ``(B) Commission review.--The Medicare Payment Review 
                Commission shall review the report submitted under 
                subparagraph (A) for a year and shall submit to the 
                Congress, by not later than December 1 of the year, a 
                report containing its analysis of the conversion factor 
                for the following year.''.
          (2) Effective date.--The amendments made by this subsection 
        shall apply to physicians' services furnished on or after 
        January 1, 1997.
  (c) Establishment of Single Conversion Factor for 1996.--
          (1) In general.--Section 1848(d)(1) (42 U.S.C. 1395w-4(d)(1)) 
        is amended--
                  (A) by redesignating subparagraph (C) as subparagraph 
                (D); and
                  (B) by inserting after subparagraph (B) the following 
                new subparagraph:
                  ``(C) Special rule for 1996.--For 1996, the 
                conversion factor under this subsection shall be $34.60 
                for all physicians' services.''.
          (2) Conforming amendments.--Section 1848 (42 U.S.C. 1395w-4), 
        as amended by paragraph (1), is amended--
                  (A) by striking ``(or factors)'' each place it 
                appears in subsection (d)(1)(A) and (d)(1)(D)(ii);
                  (B) in subsection (d)(1)(A), by striking ``or 
                updates'';
                  (C) in subsection (d)(1)(D)(ii), by striking ``(or 
                updates)''; and
                  (D) in subsection (i)(1)(C), by striking ``conversion 
                factors'' and inserting ``the conversion factor''.

SEC. 15602. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR CERTAIN 
                    OUTPATIENT HOSPITAL SERVICES.

  (a) Ambulatory Surgical Center Procedures.--Section 
1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is amended--
          (1) by striking ``of 80 percent''; and
          (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
  (b) Radiology Services and Diagnostic Procedures.--Section 
1833(n)(1)(B)(i)(II) (42 U.S.C. 1395l(n)(1)(B)(i)(II)) is amended--
          (1) by striking ``of 80 percent''; and
          (2) by striking the period at the end and inserting the 
        following: ``, less the amount a provider may charge as 
        described in clause (ii) of section 1866(a)(2)(A).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to services furnished during portions of cost reporting periods 
occurring on or after October 1, 1995.

SEC. 15603. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR DURABLE MEDICAL 
                    EQUIPMENT.

  (a) In General.--
          (1) Freeze in update for covered items.--Section 1834(a)(14) 
        (42 U.S.C. 1395m(a)(14)) is amended--
                  (A) by striking ``and'' at the end of subparagraph 
                (A);
                  (B) in subparagraph (B)--
                          (i) by striking ``a subsequent year'' and 
                        inserting ``1993, 1994, and 1995'', and
                          (ii) by striking the period at the end and 
                        inserting a semicolon; and
                  (C) by adding at the end the following:
                  ``(C) for each of the years 1996 through 2002, 0 
                percentage points; and
                  ``(D) for a subsequent year, the percentage increase 
                in the consumer price index for all urban consumers 
                (U.S. urban average) for the 12-month period ending 
                with June of the previous year.''.
          (2) Update for orthotics and prosthetics.--Section 
        1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
                  (A) by striking ``and'' at the end of clause (iii);
                  (B) by redesignating clause (iv) as clause (v); and
                  (C) by inserting after clause (iii) the following new 
                clause:
                          ``(iv) for each of the years 1996 through 
                        2002, 1 percent, and''.
  (b) Oxygen and Oxygen Equipment.--Section 1834(a)(9)(C) (42 U.S.C. 
1395m(a)(9)(C)) is amended--
          (1) by striking ``and'' at the end of clause (iii);
          (2) in clause (iv)--
                  (A) by striking ``a subsequent year'' and inserting 
                ``1993, 1994, and 1995'', and
                  (B) by striking the period at the end and inserting a 
                semicolon; and
          (3) by adding at the end the following new clauses:
                          ``(v) in 1996, is 80 percent of the national 
                        limited monthly payment rate computed under 
                        subparagraph (B) for the item for the year; and
                          ``(vi) in a subsequent year, is the national 
                        limited monthly payment rate computed under 
                        subparagraph (B) for the item for the year.''.

SEC. 15604. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR CLINICAL 
                    DIAGNOSTIC LABORATORY TESTS.

  (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 
1395l(h)(2)(A)(ii)(IV)) is amended by striking ``1994 and 1995'' and 
inserting ``1994 through 2002''.
  (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) (42 
U.S.C. 1395l(h)(4)(B)) is amended--
          (1) in clause (vi), by striking ``and'' at the end;
          (2) in clause (vii)--
                  (A) by inserting ``and before January 1, 1997,'' 
                after ``1995,'', and
                  (B) by striking the period at the end and inserting 
                ``, and''; and
          (3) by adding at the end the following new clause:
          ``(viii) after December 31, 1996, is equal to 65 percent of 
        such median.''.

SEC. 15605. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF HOSPITAL 
                    OUTPATIENT SERVICES.

  (a) Reduction in Payments for Capital-Related Costs.--Section 
1861(v)(1)(S)(ii)(I) (42 U.S.C. 1395x(v)(1)(S)(ii)(I)) is amended by 
striking ``through 1998'' and inserting ``through 2002''.
  (b) Reduction in Payments for Other Costs.--Section 
1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is amended by 
striking ``through 1998'' and inserting ``through 2002''.

SEC. 15606. FREEZE IN PAYMENTS FOR AMBULATORY SURGICAL CENTER SERVICES.

  The Secretary of Health and Human Services shall not provide for any 
inflation update in the payment amounts under subparagraphs (A) and (B) 
of section 1833(i)(2) of the Social Security Act for any of the fiscal 
years 1996 through 2002.

SEC. 15607. RURAL EMERGENCY ACCESS CARE HOSPITALS.

  (a) Coverage Under Part B.--Section 1832(a)(2) (42 U.S.C. 
1395k(a)(2)) is amended--
          (1) by striking ``and'' at the end of subparagraph (I);
          (2) by striking the period at the end of subparagraph (J) and 
        inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
                  ``(K) rural emergency access care hospital services 
                (as defined in section 1861(oo)(2)).''.
  (b) Payment Based on Payment for Outpatient Rural Primary Care 
Hospital Services.--
          (1) In general.--Section 1833(a)(6) (42 U.S.C. 1395l(a)(6)) 
        is amended by striking ``services,'' and inserting ``services 
        and rural emergency access care hospital services,''.
          (2) Payment methodology described.--Section 1834(g) (42 
        U.S.C. 1395m(g)) is amended--
                  (A) in the heading, by striking ``Services'' and 
                inserting ``Services and Rural Emergency Access Care 
                Hospital Services''; and
                  (B) by adding at the end the following new sentence: 
                ``The amount of payment for rural emergency access care 
                hospital services provided during a year shall be 
                determined using the applicable method provided under 
                this subsection for determining payment for outpatient 
                rural primary care hospital services during the 
                year.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to services furnished on or after October 1, 1995.

                         PART 2--PART B PREMIUM

SEC. 15611. EXTENSION OF PART B PREMIUM.

  (a) In General.--Section 1839(e)(1) (42 U.S.C. 1395r(e)(1)) is 
amended--
          (1) in subparagraph (A)--
                  (A) by striking ``and prior to January 1999'', and
                  (B) by inserting ``(or, if higher, the percent 
                described in subparagraph (C))'' after ``50 percent''; 
                and
          (2) by adding at the end the following new subparagraph:
  ``(C) For purposes of subparagraph (A), the percent described in this 
subparagraph is the ratio (expressed as a percentage) of the monthly 
premium established under this section for months in 1995 to the 
monthly actuarial rate for enrollees age 65 and over applicable to such 
months (as specified in the most recent report of the Board of Trustees 
of the Federal Supplementary Medical Insurance Trust Fund published 
prior to the date of the enactment of the Medicare Preservation Act of 
1995).''.
  (b) Effective Date.--The amendments made by subsection (a) apply to 
premiums for months beginning with January 1996.

SEC. 15612. INCOME-RELATED REDUCTION IN MEDICARE SUBSIDY.

  (a) In General.--Section 1839 (42 U.S.C. 1395r) is amended by adding 
at the end the following:
  ``(h)(1) Notwithstanding the previous subsections of this section, in 
the case of an individual whose modified adjusted gross income for a 
taxable year ending with or within a calendar year (as initially 
determined by the Secretary in accordance with paragraph (3)) exceeds 
the threshold amount described in paragraph (4), the Secretary shall 
increase the amount of the monthly premium for months in the calendar 
year by an amount equal to the difference between--
          ``(A) 200 percent of the monthly actuarial rate for enrollees 
        age 65 and over as determined under subsection (a)(1) for that 
        calendar year; and
          ``(B) the total of the monthly premiums paid by the 
        individual under this section (determined without regard to 
        subsection (b)) during such calendar year.
  ``(2) In the case of an individual described in paragraph (1) whose 
modified adjusted gross exceeds the threshold amount by less than 
$25,000, the amount of the increase in the monthly premium applicable 
under paragraph (1) shall be an amount which bears the same ratio to 
the amount of the increase described in paragraph (1) (determined 
without regard to this paragraph) as such excess bears to $25,000. In 
the case of a joint return filed under section 6013 of the Internal 
Revenue Code of 1986 by spouses both of whom are enrolled under this 
part, the previous sentence shall be applied by substituting `$50,000' 
for `$25,000'. The preceding provisions of this paragraph shall not 
apply to any individual whose threshold amount is zero.
  ``(3) The Secretary shall make an initial determination of the amount 
of an individual's adjusted gross income for a taxable year ending with 
or within a calendar year for purposes of this subsection as follows:
          ``(A) Not later than October 1 of the year preceding the 
        year, the Secretary shall provide notice to each individual 
        whom the Secretary finds (on the basis of the individual's 
        actual adjusted gross income for the most recent taxable year 
        for which such information is available or other information 
        provided to the Secretary by the Secretary of the Treasury) 
        will be subject to an increase under this subsection that the 
        individual will be subject to such an increase, and shall 
        include in such notice the Secretary's estimate of the 
        individual's adjusted gross income for the year.
          ``(B) If, during the 30-day period beginning on the date 
        notice is provided to an individual under subparagraph (A), the 
        individual provides the Secretary with information on the 
        individual's anticipated adjusted gross income for the year, 
        the amount initially determined by the Secretary under this 
        paragraph with respect to the individual shall be based on the 
        information provided by the individual.
          ``(C) If an individual does not provide the Secretary with 
        information under subparagraph (B), the amount initially 
        determined by the Secretary under this paragraph with respect 
        to the individual shall be the amount included in the notice 
        provided to the individual under subparagraph (A).
  ``(4)(A) If the Secretary determines (on the basis of final 
information provided by the Secretary of the Treasury) that the amount 
of an individual's actual adjusted gross income for a taxable year 
ending with or within a calendar year is less than or greater than the 
amount initially determined by the Secretary under paragraph (3), the 
Secretary shall increase or decrease the amount of the individual's 
monthly premium under this section (as the case may be) for months 
during the following calendar year by an amount equal to \1/12\ of the 
difference between--
          ``(i) the total amount of all monthly premiums paid by the 
        individual under this section during the previous calendar 
        year; and
          ``(ii) the total amount of all such premiums which would have 
        been paid by the individual during the previous calendar year 
        if the amount of the individual's adjusted gross income 
        initially determined under paragraph (3) were equal to the 
        actual amount of the individual's adjusted gross income 
        determined under this paragraph.
  ``(B) In the case of an individual who is not enrolled under this 
part for any calendar year for which the individual's monthly premium 
under this section for months during the year would be increased 
pursuant to subparagraph (A) if the individual were enrolled under this 
part for the year, the Secretary may take such steps as the Secretary 
considers appropriate to recover from the individual the total amount 
by which the individual's monthly premium for months during the year 
would have been increased under subparagraph (A) if the individual were 
enrolled under this part for the year.
  ``(C) In the case of a deceased individual for whom the amount of the 
monthly premium under this section for months in a year would have been 
decreased pursuant to subparagraph (A) if the individual were not 
deceased, the Secretary shall make a payment to the individual's 
surviving spouse (or, in the case of an individual who does not have a 
surviving spouse, to the individual's estate) in an amount equal to the 
difference between--
          ``(i) the total amount by which the individual's premium 
        would have been decreased for all months during the year 
        pursuant to subparagraph (A); and
          ``(ii) the amount (if any) by which the individual's premium 
        was decreased for months during the year pursuant to 
        subparagraph (A).
  ``(5) In this subsection, the following definitions apply:
          ``(A) The term `modified adjusted gross income' means, with 
        respect to an individual for a taxable year, the individual's 
        adjusted gross income under the Internal Revenue Code of 1986--
                  ``(i) determined without regard to sections 135, 911, 
                931, and 933 of such Code, and
                  ``(ii) increased by the amount of interest received 
                or accrued by the individual during the taxable year 
                which is exempt from tax under such Code.
          ``(B) The term `threshold amount' means--
                  ``(i) except as otherwise provided in this paragraph, 
                $75,000,
                  ``(ii) $125,000, in the case of a joint return, and
                  ``(iii) zero in the case of a taxpayer who--
                          ``(I) is married at the close of the taxable 
                        year but does not file a joint return for such 
                        year, and
                          ``(II) does not live apart from his spouse at 
                        all times during the taxable year.''.
  (b) Conforming Amendment.--Section 1839(f) (42 U.S.C. 1395r(f)) is 
amended by striking ``if an individual'' and inserting the following: 
``if an individual (other than an individual subject to an increase in 
the monthly premium under this section pursuant to subsection (h))''.
  (c) Reporting Requirements for Secretary of the Treasury.--
Notwithstanding section 6103 of the Internal Revenue Code of 1986, the 
Secretary of the Treasury shall provide, at the request of the 
Secretary of Health and Human Services, such information (at such times 
and in such form as the Secretary of Health and Human Services may 
require) as is necessary for the Secretary of Health and Human Services 
to carry out section 1839(h) of the Social Security Act (as added by 
subsection (a)).
  (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to the monthly premium under section 1839 of the Social 
Security Act for months beginning with January 1997.

     PART 3--ADMINISTRATIVE SIMPLIFICATION FOR LABORATORY SERVICES

SEC. 15621. ADMINISTRATIVE SIMPLIFICATION FOR LABORATORY SERVICES.

  (a) In General.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary of Health and Human Services (in 
accordance with the process described in subsection (b)) shall adopt 
uniform coverage, administration, and payment policies for clinical 
diagnostic laboratory tests under part B of the medicare program.
  (b) Process for Adoption of Policies.--The Secretary shall adopt 
uniform policies under subsection (a) in accordance with the following 
process:
          (1) The Secretary shall select from carriers with whom the 
        Secretary has a contract under part B during 1995 15 medical 
        directors, who will meet and develop recommendations for such 
        uniform policies. The medical directors selected shall 
        represent various geographic areas and have a varied range of 
        experience in relevant medical fields, including pathology and 
        clinical laboratory practice.
          (2) The medical directors selected under paragraph (1) shall 
        consult with independent experts in each major discipline of 
        clinical laboratory medicine, including clinical laboratory 
        personnel, bioanalysts, pathologists, and practicing 
        physicians. The medical directors shall also solicit comments 
        from other individuals and groups who wish to participate, 
        including consumers and other affected parties. This process 
        shall be conducted as a negotiated rulemaking under title 5, 
        United States Code.
          (3) Under the negotiated rulemaking, the recommendations for 
        uniform policies shall be designed to simplify and reduce 
        unnecessary administrative burdens in connection with the 
        following:
                  (A) Beneficiary information required to be submitted 
                with each claim.
                  (B) Physicians' obligations regarding documentation 
                requirements and recordkeeping.
                  (C) Procedures for filing claims and for providing 
                remittances by electronic media.
                  (D) The performance of post-payment review of test 
                claims.
                  (E) The prohibition of the documentation of medical 
                necessity except when determined to be appropriate 
                after identification of aberrant utilization pattern 
                through focused medical review.
                  (F) Beneficiary responsibility for payment.
          (4) During the pendency of the adoption by the Secretary of 
        the uniform policies, fiscal intermediaries and carriers under 
        the medicare program may not implement any new requirement 
        relating to the submission of a claim for clinical diagnostic 
        laboratory tests retroactive to January 1, 1995, and carriers 
        may not initiate any new coverage, administrative, or payment 
        policy unless the policy promotes the goal of administrative 
        simplification of requirements imposed on clinical laboratories 
        in accordance with the Secretary's promulgation of the 
        negotiated rulemaking.
          (5) Not later than 6 months after the date of the enactment 
        of this Act, the medical directors shall submit their 
        recommendations to the Secretary, and the Secretary shall 
        publish the recommendations and solicit public comment using 
        negotiated rulemaking in accordance with title 5, United States 
        Code. The Secretary shall publish final uniform policies for 
        coverage, administration, and payment of claims for clinical 
        diagnostic laboratory tests, effective after the expiration of 
        the 180-day period which begins on the date of publication.
          (6) After the publication of the final uniform policies, the 
        Secretary shall implement identical uniform documentation and 
        processing policies for all clinical diagnostic laboratory 
        tests paid under the medicare program through fiscal 
        intermediaries or carriers.
  (c) Optional Selection of Single Carrier.--Effective for claims 
submitted after the expiration of the 90-day period which begins on the 
date of the enactment of this Act, an independent laboratory may select 
a single carrier for the processing of all of its claims for payment 
under part B of the medicare program, without regard to the location 
where the laboratory or the patient or provider involved resides or 
conducts business. Such election of a single carrier shall be made by 
the clinical laboratory and an agreement made between the carrier and 
the laboratory shall be forwarded to the Secretary of Health and Human 
Services. Nothing in this subsection shall be construed to require a 
laboratory to select a single carrier under this subsection.

             PART 4--COVERAGE OF CERTAIN ANTI-NAUSEA DRUGS

SEC. 15631. COVERAGE OF ORAL ANTI-NAUSEA DRUGS UNDER CHEMOTHERAPEUTIC 
                    REGIMEN.

  Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) is amended--
          (1) by striking ``and'' at the end of subparagraphs (N) and 
        (O);
          (2) in subparagraph (Q), by adding ``and'' at the end; and
          (3) by adding at the end the following new subparagraph:
          ``(R) an oral drug (which is approved by the Federal Food and 
        Drug Administration) prescribed for use as an anti-emetic used 
        as part of an anticancer chemotherapeutic regimen, if the drug 
        is prescribed or dispensed--
                  ``(i) for use not later than 12 hours after the 
                administration of the anticancer chemotherapeutic 
                agent; and
                  ``(ii) as a substitute for any other anti-emetic 
                therapy which would otherwise be administered 
                intravenously.''.

SEC. 15632. EFFECTIVE DATE.

  The amendments made by this part shall apply to items and services 
furnished on or after January 1, 1996.

      PART 5--COVERAGE OF CERTAIN SERVICES ORDERED OR REFERRED BY 
                             CHIROPRACTORS

SEC. 15641. COVERAGE OF CERTAIN SERVICES ORDERED OR REFERRED BY 
                    CHIROPRACTORS.

  (a) Clarifying That Chiropractors May Order, and Refer Patients to 
Other Practitioners for, X-Rays.--Section 1861(r)(5) (42 U.S.C. 
1395x(r)(5)) is amended by striking the period at the end and inserting 
the following: ``, and for the ordering or referral of diagnostic X-ray 
tests under subsection (s)(3) which are not furnished by the 
chiropractor and for which payment may otherwise be made under this 
title.''.
  (b) Budget Neutrality Adjustment.--Notwithstanding any other 
provision of law, for each year (beginning with 1996), the Secretary 
shall reduce the amount of payments under section 1833 of the Social 
Security Act with respect to services furnished by chiropractors by 
such uniform percentage as the Secretary determines to be required to 
assure that the amendment made by subsection (a) does not result in 
expenditures under title XVIII of such Act in the year that exceed the 
amount of such expenditures that would have been made in such year if 
such amendment had not been made.
  (c) Effective Date.--The amendments made by subsection (a) shall 
apply to items and services furnished on or after January 1, 1996.

       Subtitle H--Provisions Relating to Medicare Parts A and B

               PART 1--PAYMENTS FOR HOME HEALTH SERVICES

SEC. 15701. PAYMENT FOR HOME HEALTH SERVICES.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended by 
section 15106, is amended by adding at the end the following new 
section:
                   ``payment for home health services
  ``Sec. 1894. (a) In General.--
          ``(1) Per visit payments.--Subject to subsection (c), the 
        Secretary shall make per visit payments beginning with fiscal 
        year 1997 to a home health agency in accordance with this 
        section for each type of home health service described in 
        paragraph (2) furnished to an individual who at the time the 
        service is furnished is under a plan of care by the home health 
        agency under this title (without regard to whether or not the 
        item or service was furnished by the agency or by others under 
        arrangement with them made by the agency, or otherwise).
          ``(2) Types of services.--The types of home health services 
        described in this paragraph are the following:
                  ``(A) Part-time or intermittent nursing care provided 
                by or under the supervision of a registered 
                professional nurse.
                  ``(B) Physical therapy.
                  ``(C) Occupational therapy.
                  ``(D) Speech-language pathology services.
                  ``(E) Medical social services under the direction of 
                a physician.
                  ``(F) To the extent permitted in regulations, part-
                time or intermittent services of a home health aide who 
                has successfully completed a training program approved 
                by the Secretary.
  ``(b) Establishment of Per Visit Rate for Each Type of Services.--
          ``(1) In general.--The Secretary shall, subject to paragraph 
        (3), establish a per visit payment rate for a home health 
        agency in an area for each type of home health service 
        described in subsection (a)(2). Such rate shall be equal to the 
        national per visit payment rate determined under paragraph (2) 
        for each such type, except that the labor-related portion of 
        such rate shall be adjusted by the area wage index applicable 
        under section 1886(d)(3)(E) for the area in which the agency is 
        located (as determined without regard to any reclassification 
        of the area under section 1886(d)(8)(B) or a decision of the 
        Medicare Geographic Classification Review Board or the 
        Secretary under section 1886(d)(10) for cost reporting periods 
        beginning after October 1, 1995).
          ``(2) National per visit payment rate.--The national per 
        visit payment rate for each type of service described in 
        subsection (a)(2)--
                  ``(A) for fiscal year 1997, is an amount equal to the 
                national average amount paid per visit under this title 
                to home health agencies for such type of service during 
                the most recent 12-month cost reporting period ending 
                on or before June 30, 1994, increased (in a compounded 
                manner) by the home health market basket percentage 
                increase for fiscal years 1995, 1996, and 1997; and
                  ``(B) for each subsequent fiscal year, is an amount 
                equal to the national per visit payment rate in effect 
                for the preceding fiscal year, increased by the home 
                health market basket percentage increase for such 
                subsequent fiscal year minus 2 percentage points.
          ``(3) Rebasing of rates.--The Secretary shall provide for an 
        update to the national per visit payment rates under this 
        subsection for cost reporting periods beginning not later than 
        the first day of the fifth fiscal year which begins after 
        fiscal year 1997, and not later than every 5 years thereafter, 
        to reflect the most recent available data.
          ``(4) Home health market basket percentage increase.--For 
        purposes of this subsection, the term `home health market 
        basket percentage increase' means, with respect to a fiscal 
        year, a percentage (estimated by the Secretary before the 
        beginning of the fiscal year) determined and applied with 
        respect to the types of home health services described in 
        subsection (a)(2) in the same manner as the market basket 
        percentage increase under section 1886(b)(3)(B)(iii) is 
        determined and applied to inpatient hospital services for the 
        fiscal year.
  ``(c) Per Episode Limit.--
          ``(1) Aggregate limit.--
                  ``(A) In general.--Except as provided in paragraph 
                (2), a home health agency may not receive aggregate per 
                visit payments under subsection (a) for a fiscal year 
                in excess of an amount equal to the sum of the 
                following products determined for each case-mix 
                category for which the agency receives payments:
                          ``(i) The number of episodes of each case-mix 
                        category during the fiscal year; multiplied by
                          ``(ii) the per episode limit determined for 
                        such case-mix category for such fiscal year.
                  ``(B) Establishment of per episode limits.--
                          ``(i) In general.--The per episode limit for 
                        a fiscal year for any case-mix category for the 
                        area in which a home health agency is located 
                        is equal to--
                                  ``(I) the mean number of visits for 
                                each type of home health service 
                                described in subsection (a)(2) 
                                furnished during an episode of such 
                                case-mix category in such area during 
                                fiscal year 1994, adjusted by the case-
                                mix adjustment factor determined in 
                                clause (ii) for the fiscal year 
                                involved; multiplied by
                                  ``(II) the per visit payment rate 
                                established under subsection (b) for 
                                such type of home health service for 
                                the fiscal year for which the 
                                determination is being made.
                          ``(ii) Case mix adjustment factor.--For 
                        purposes of clause (i), the case-mix adjustment 
                        factor for a year is the factor determined by 
                        the Secretary to assure that aggregate payments 
                        for home health services under this section 
                        during the year will not exceed the payment for 
                        such services during the previous year as a 
                        result of changes in the number and type of 
                        home health visits within case-mix categories 
                        over the previous year.
                          ``(iii) Rebasing of per episode amounts.--
                        Beginning with fiscal year 1999 and every 2 
                        years thereafter, the Secretary shall revise 
                        the mean number of home health visits 
                        determined under clause (i)(I) for each type of 
                        home health service visit described in 
                        subsection (a)(2) furnished during an episode 
                        in a case-mix category to reflect the most 
                        recently available data on the number of 
                        visits.
                          ``(iv) Determination of applicable area.--For 
                        purposes of determining per episode limits 
                        under this subparagraph, the area in which a 
                        home health agency is considered to be located 
                        shall be such area as the Secretary finds 
                        appropriate for purposes of this subparagraph.
                  ``(C) Case-mix category.--For purposes of this 
                paragraph, the term `case-mix category' means each of 
                the 18 case-mix categories established under the Phase 
                II Home Health Agency Prospective Payment Demonstration 
                Project conducted by the Health Care Financing 
                Administration. The Secretary may develop an alternate 
                methodology for determining case-mix categories.
                  ``(D) Episode.--
                          ``(i) In general.--For purposes of this 
                        paragraph, the term `episode' means the 
                        continuous 120-day period that--
                                  ``(I) begins on the date of an 
                                individual's first visit for a type of 
                                home health service described in 
                                subsection (a)(2) for a case-mix 
                                category, and
                                  ``(II) is immediately preceded by a 
                                60-day period in which the individual 
                                did not receive visits for a type of 
                                home health service described in 
                                subsection (a)(2).
                          ``(ii) Treatment of episodes spanning cost 
                        reporting periods.--The Secretary shall provide 
                        for such rules as the Secretary considers 
                        appropriate regarding the treatment of episodes 
                        under this paragraph which begin during a cost 
                        reporting period and end in a subsequent cost 
                        reporting period.
                  ``(E) Exemptions and exceptions.--The Secretary may 
                provide for exemptions and exceptions to the limits 
                established under this paragraph for a fiscal year as 
                the Secretary deems appropriate, to the extent such 
                exemptions and exceptions do not result in greater 
                payments under this section than the exemptions and 
                exceptions provided under section 1861(v)(1)(L)(ii) in 
                fiscal year 1994, increased by the home health market 
                basket percentage increase for the fiscal year involved 
                (as defined in subsection (b)(4)).
          ``(2) Reconciliation of amounts.--
                  ``(A) Overpayments to home health agencies.--Subject 
                to subparagraph (B), if a home health agency has 
                received aggregate per visit payments under subsection 
                (a) for a fiscal year in excess of the amount 
                determined under paragraph (1) with respect to such 
                home health agency for such fiscal year, the Secretary 
                shall reduce payments under this section to the home 
                health agency in the following fiscal year in such 
                manner as the Secretary considers appropriate 
                (including on an installment basis) to recapture the 
                amount of such excess.
                  ``(B) Exception for home health services furnished 
                over a period greater than 165 days.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), the amount of aggregate per 
                        visit payments determined under subsection (a) 
                        shall not include payments for home health 
                        visits furnished to an individual on or after a 
                        continuous period of more than 165 days after 
                        an individual begins an episode described in 
                        subsection (c)(1)(D) (if such period is not 
                        interrupted by the beginning of a new episode).
                          ``(ii) Requirement of certification.--Clause 
                        (i) shall not apply if the agency has not 
                        obtained a physician's certification with 
                        respect to the individual requiring such visits 
                        that includes a statement that the individual 
                        requires such continued visits, the reason for 
                        the need for such visits, and a description of 
                        such services furnished during such visits.
                  ``(C) Share of savings.--
                          ``(i) Bonus payments.--If a home health 
                        agency has received aggregate per visit 
                        payments under subsection (a) for a fiscal year 
                        in an amount less than the amount determined 
                        under paragraph (1) with respect to such home 
                        health agency for such fiscal year, the 
                        Secretary shall pay such home health agency a 
                        bonus payment equal to 50 percent of the 
                        difference between such amounts in the 
                        following fiscal year, except that the bonus 
                        payment may not exceed 5 percent of the 
                        aggregate per visit payments made to the agency 
                        for the year.
                          ``(ii) Installment bonus payments.--The 
                        Secretary may make installment payments during 
                        a fiscal year to a home health agency based on 
                        the estimated bonus payment that the agency 
                        would be eligible to receive with respect to 
                        such fiscal year.
  ``(d) Medical Review Process.--The Secretary shall implement a 
medical review process (with a particular emphasis on fiscal years 1997 
and 1998) for the system of payments described in this section that 
shall provide an assessment of the pattern of care furnished to 
individuals receiving home health services for which payments are made 
under this section to ensure that such individuals receive appropriate 
home health services. Such review process shall focus on low-cost cases 
described in subsection (e)(3) and cases described in subsection 
(c)(2)(B) and shall require recertification by intermediaries at 30, 
60, 90, 120, and 165 days into an episode described in subsection 
(c)(1)(D).
  ``(e) Adjustment of Payments to Avoid Circumvention of Limits.--
          ``(1) In general.--The Secretary shall provide for 
        appropriate adjustments to payments to home health agencies 
        under this section to ensure that agencies do not circumvent 
        the purpose of this section by--
                  ``(A) discharging patients to another home health 
                agency or similar provider;
                  ``(B) altering corporate structure or name to avoid 
                being subject to this section or for the purpose of 
                increasing payments under this title; or
                  ``(C) undertaking other actions considered 
                unnecessary for effective patient care and intended to 
                achieve maximum payments under this title.
          ``(2) Tracking of patients that switch home health agencies 
        during episode.--
                  ``(A) Development of system.--The Secretary shall 
                develop a system that tracks home health patients that 
                receive home health services described in subsection 
                (a)(2) from more than 1 home health agency during an 
                episode described in subsection (c)(1)(D).
                  ``(B) Adjustment of payments.--The Secretary shall 
                adjust payments under this section to each home health 
                agency that furnishes an individual with a type of home 
                health service described in subsection (a)(2) to ensure 
                that aggregate payments on behalf of such individual 
                during such episode do not exceed the amount that would 
                be paid under this section if the individual received 
                such services from a single home health agency.
          ``(3) Low-cost cases.--The Secretary shall develop a system 
        designed to adjust payments to a home health agency for a 
        fiscal year to eliminate any increase in growth of the 
        percentage of low-cost episodes for which home health services 
        are furnished by the agency over such percentage determined for 
        the agency for the 12-month cost reporting period ending on 
        June 30, 1994. The Secretary shall define a low-cost episode in 
        a manner that provides that a home health agency has an 
        incentive to be cost efficient in delivering home health 
        services and that the volume of such services does not increase 
        as a result of factors other than patient needs.
  ``(f) Report by Medicare Payment Review Commission.--During the first 
3 years in which payments are made under this section, the Medicare 
Payment Review Commission shall annually submit a report to Congress on 
the effectiveness of the payment methodology established under this 
section that shall include recommendations regarding the following:
          ``(1) Case-mix and volume increases.
          ``(2) Quality monitoring of home health agency practices.
          ``(3) Whether a capitated payment for home care patients 
        receiving care during a continuous period exceeding 165 days is 
        warranted.
          ``(4) Whether public providers of service are adequately 
        reimbursed.
          ``(5) The adequacy of the exemptions and exceptions to the 
        limits provided under subsection (c)(1)(E).
          ``(6) The appropriateness of the methods provided under this 
        section to adjust the per episode limits and annual payment 
        updates to reflect changes in the mix of services, number of 
        visits, and assignment to case categories to reflect changing 
        patterns of home health care.
          ``(7) The geographic areas used to determine the per episode 
        limits.''.
  (b) Payment for Prosthetics and Orthotics Under Part A.--Section 
1814(k) (42 U.S.C. 1395f(k)) is amended--
          (1) by inserting ``and prosthetics and orthotics'' after 
        ``durable medical equipment''; and
          (2) by inserting ``and 1834(h), respectively'' after 
        ``1834(a)(1)''.
  (c) Conforming Amendments.--
          (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
        1395f(b)), as amended by section 15522(b), is amended in the 
        matter preceding paragraph (1) by striking ``1888 and 1888A'' 
        and inserting ``1888, 1888A, and 1894''.
          (2) Treatment of items and services paid under part b.--
                  (A) Payments under part b.--Section 1833(a)(2) (42 
                U.S.C. 1395l(a)(2)) is amended--
                          (i) by amending subparagraph (A) to read as 
                        follows:
                  ``(A) with respect to home health services--
                          ``(i) that are a type of home health service 
                        described in section 1894(a)(2), and which are 
                        furnished to an individual who (at the time the 
                        item or service is furnished) is under a plan 
                        of care of a home health agency, the amount 
                        determined under section 1894; or
                          ``(ii) that are not described in clause (i) 
                        (other than a covered osteoporosis drug) (as 
                        defined in section 1861(kk)), the lesser of--
                                  ``(I) the reasonable cost of such 
                                services, as determined under section 
                                1861(v), or
                                  ``(II) the customary charges with 
                                respect to such services;''.
                          (ii) by striking ``and'' at the end of 
                        subparagraph (E);
                          (iii) by adding ``and'' at the end of 
                        subparagraph (F); and
                          (iv) by adding at the end the following new 
                        subparagraph:
                  ``(G) with respect to items and services described in 
                section 1861(s)(10)(A), the lesser of--
                          ``(i) the reasonable cost of such services, 
                        as determined under section 1861(v), or
                          ``(ii) the customary charges with respect to 
                        such services,
                or, if such services are furnished by a public provider 
                of services, or by another provider which demonstrates 
                to the satisfaction of the Secretary that a significant 
                portion of its patients are low-income (and requests 
                that payment be made under this provision), free of 
                charge or at nominal charges to the public, the amount 
                determined in accordance with section 1814(b)(2);''.
                  (B) Requiring payment for all items and services to 
                be made to agency.--
                          (i) In general.--The first sentence of 
                        section 1842(b)(6) (42 U.S.C. 1395u(b)(6)), as 
                        amended by section 15525(a)(1), is amended--
                                  (I) by striking ``and (E)'' and 
                                inserting ``(E)''; and
                                  (II) by striking the period at the 
                                end and inserting the following: ``, 
                                and (F) in the case of types of home 
                                health services described in section 
                                1894(a)(2) furnished to an individual 
                                who (at the time the item or service is 
                                furnished) is under a plan of care of a 
                                home health agency, payment shall be 
                                made to the agency (without regard to 
                                whether or not the item or service was 
                                furnished by the agency, by others 
                                under arrangement with them made by the 
                                agency, or otherwise).''.
                          (ii) Conforming amendment.--Section 
                        1832(a)(1) (42 U.S.C. 1395k(a)(1)), as amended 
                        by section 15525(a)(3), is amended by striking 
                        ``section 1842(b)(6)(E);'' and inserting 
                        ``subparagraphs (E) and (F) of section 
                        1842(b)(6);''.
                  (C) Exclusions from coverage.--Section 1862(a) (42 
                U.S.C. 1395y(a)), as amended by section 15525(a)(2), is 
                amended--
                          (i) by striking ``or'' at the end of 
                        paragraph (15);
                          (ii) by striking the period at the end of 
                        paragraph (16) and inserting ``; or''; and
                          (iii) by adding at the end the following new 
                        paragraph:
          ``(17) where such expenses are for home health services 
        furnished to an individual who is under a plan of care of the 
        home health agency if the claim for payment for such services 
        is not submitted by the agency.''.
          (3) Sunset of reasonable cost limitations.--Section 
        1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended by adding 
        at the end the following new clause:
  ``(iv) This subparagraph shall apply only to services furnished by 
home health agencies during cost reporting periods ending on or before 
September 30, 1996.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to cost reporting periods beginning on or after October 1, 1996.

SEC. 15702. MAINTAINING SAVINGS RESULTING FROM TEMPORARY FREEZE ON 
                    PAYMENT INCREASES FOR HOME HEALTH SERVICES.

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

SEC. 15703. EXTENSION OF WAIVER OF PRESUMPTION OF LACK OF KNOWLEDGE OF 
                    EXCLUSION FROM COVERAGE FOR HOME HEALTH AGENCIES.

  Section 9305(g)(3) of OBRA-1986, as amended by section 426(d) of the 
Medicare Catastrophic Coverage Act of 1988 and section 4207(b)(3) of 
OBRA-1990 (as renumbered by section 160(d)(4) of the Social Security 
Act Amendments of 1994), is amended by striking ``December 31, 1995'' 
and inserting ``September 30, 1996''.

SEC. 15704. STUDY OF COVERAGE OF SERVICES OF CHRISTIAN SCIENCE 
                    PROVIDERS.

  (a) Study.--The Secretary of Health and Human Services shall conduct 
a study of the feasibility and desirability of providing for coverage 
under the medicare program of home health services furnished by 
Christian Science providers who meet applicable requirements of the 
First Church of Christ, Scientist, Boston, Massachusetts.
  (b) Report.--Not later than July 1, 1996, the Secretary shall submit 
a report to Congress on the study conducted under subsection (a), and 
(to the extent the report includes recommendations for coverage under 
the medicare program of home health services furnished by Christian 
Science providers) shall include in the report recommendations 
regarding appropriate criteria for the certification of such providers 
and an appropriate methodology for making payments under the medicare 
program for such services.

             PART 2--MEDICARE SECONDARY PAYER IMPROVEMENTS

SEC. 15711. EXTENSION AND EXPANSION OF EXISTING REQUIREMENTS.

  (a) Data Match.--
          (1) Section 1862(b)(5)(C) (42 U.S.C. 1395y(b)(5)(C)) is 
        amended by striking clause (iii).
          (2) Section 6103(l)(12) of the Internal Revenue Code of 1986 
        is amended by striking subparagraph (F).
  (b) Application to Disabled Individuals in Large Group Health 
Plans.--
          (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
        1395y(b)(1)(B)) is amended--
                  (A) in clause (i), by striking ``clause (iv)'' and 
                inserting ``clause (iii)'',
                  (B) by striking clause (iii), and
                  (C) by redesignating clause (iv) as clause (iii).
          (2) Conforming amendments.--Paragraphs (1) through (3) of 
        section 1837(i) (42 U.S.C. 1395p(i)) and the second sentence of 
        section 1839(b) (42 U.S.C. 1395r(b)) are each amended by 
        striking ``1862(b)(1)(B)(iv)'' each place it appears and 
        inserting ``1862(b)(1)(B)(iii)''.
  (c) Expansion of Period of Application to Individuals With End Stage 
Renal Disease.--Section 1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is 
amended--
          (1) in the first sentence, by striking ``12-month'' each 
        place it appears and inserting ``24-month'', and
          (2) by striking the second sentence.

SEC. 15712. IMPROVEMENTS IN RECOVERY OF PAYMENTS.

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

SEC. 15713. PROHIBITING RETROACTIVE APPLICATION OF POLICY REGARDING 
                    ESRD BENEFICIARIES ENROLLED IN PRIMARY PLANS.

  For purposes of carrying out section 1862(b)(1)(C) of the Social 
Security Act, the Secretary of Health and Human Services shall apply 
the policy directive issued by the Administrator of the Health Care 
Financing Administration on April 24, 1995, only with respect to items 
and services furnished on or after such date.

                            PART 3--FAILSAFE

SEC. 15721. FAILSAFE BUDGET MECHANISM.

  (a) In General.--Title XVIII, as amended by sections 15106(a) and 
15701(a), is amended by adding at the end the following new section:
                      ``failsafe budget mechanism
  ``Sec. 1895. (a) Requirement of Payment Adjustments to Achieve 
Medicare Budget Targets.--If the Secretary determines under subsection 
(e)(3)(C) before a fiscal year (beginning with fiscal year 1998) that--
          ``(1) the fee-for-service expenditures (as defined in 
        subsection (f)) for a sector of medicare services (as defined 
        in subsection (b)) for the fiscal year, will exceed
          ``(2) the allotment specified under subsection (c)(2) for 
        such fiscal year (taking into account any adjustment in the 
        allotment under subsection (h) for that fiscal year),
then, notwithstanding any other provision of this title, there shall be 
an adjustment (consistent with subsection (d)) in applicable payment 
rates or payments for items and services included in the sector in the 
fiscal year so that such expenditures for the sector for the year will 
be reduced by 133\1/3\ percent of the amount of such excess.
  ``(b) Sectors of Medicare Services Described.--
          ``(1) In general.--For purposes of this section, items and 
        services included under each of the following subparagraphs 
        shall be considered to be a separate `sector' of medicare 
        services:
                  ``(A) Inpatient hospital services.
                  ``(B) Home health services.
                  ``(C) Extended care services (for inpatients of 
                skilled nursing facilities).
                  ``(D) Hospice care.
                  ``(E) Physicians' services (including services and 
                supplies described in section 1861(s)(2)(A)) and 
                services of other health care professionals (including 
                certified registered nurse anesthetists, nurse 
                practitioners, physician assistants, and clinical 
                psychologists) for which separate payment is made under 
                this title.
                  ``(F) Outpatient hospital services and ambulatory 
                facility services.
                  ``(G) Durable medical equipment and supplies, 
                including prosthetic devices and orthotics.
                  ``(H) Diagnostic tests (including clinical laboratory 
                services and x-ray services).
                  ``(I) Other items and services.
          ``(2) Classification of items and services.--The Secretary 
        shall classify each type of items and services covered and paid 
        for separately under this title into one of the sectors 
        specified in paragraph (1). After publication of such 
        classification under subsection (e)(1), the Secretary is not 
        authorized to make substantive changes in such classification.
  ``(c) Allotment.--
          ``(1) Allotments for each sector.--For purposes of this 
        section, subject to subsection (h)(1), the allotment for a 
        sector of medicare services for a fiscal year is equal to the 
        product of--
                  ``(A) the total allotment for the fiscal year 
                established under paragraph (2), and
                  ``(B) the allotment proportion (specified under 
                paragraph (3)) for the sector and fiscal year involved.
          ``(2) Total allotment.--
                  ``(A) In general.--For purposes of this section, the 
                total allotment for a fiscal year is equal to--
                          ``(i) the medicare benefit budget for the 
                        fiscal year (as specified under subparagraph 
                        (B)), reduced by
                          ``(ii) the amount of payments the Secretary 
                        estimates will be made in the fiscal year under 
                        the MedicarePlus program under part C.
                In making the estimate under clause (ii), the Secretary 
                shall take into account estimated enrollment and 
                demographic profile of individuals electing 
                MedicarePlus products.
                  ``(B) Medicare benefit budget.--For purposes of this 
                subsection, subject to subparagraph (C), the `medicare 
                benefit budget'--
                          ``(i) for fiscal year 1997 is $203.1 billion;
                          ``(ii) for fiscal year 1998 is $214.3 
                        billion;
                          ``(iii) for fiscal year 1999 is $227.2 
                        billion;
                          ``(iv) for fiscal year 2000 is $241.0 
                        billion;
                          ``(v) for fiscal year 2001 is $259.1 billion;
                          ``(vi) for fiscal year 2002 is $280.0 
                        billion; and
                          ``(vii) for a subsequent fiscal year is equal 
                        to the medicare benefit budget under this 
                        subparagraph for the preceding fiscal year 
                        increased by the sum of (I) 5 percentage 
                        points, and (II) product of (I) 1.05, and (II) 
                        1 plus the annual percentage increase in the 
                        average number of medicare beneficiaries from 
                        the previous fiscal year to the fiscal year 
                        involved.
          ``(3) Medicare allotment proportion defined.--
                  ``(A) In general.--For purposes of this section and 
                with respect to a sector of medicare services for a 
                fiscal year, the term `medicare allotment proportion' 
                means the ratio of--
                          ``(i) the baseline-projected medicare 
                        expenditures (as determined under subparagraph 
                        (B)) for the sector for the fiscal year, to
                          ``(ii) the sum of such baseline expenditures 
                        for all such sectors for the fiscal year.
                  ``(B) Baseline-projected medicare expenditures.--In 
                this paragraph, the `baseline, projected medicare 
                expenditures' for a sector of medicare services--
                          ``(i) for fiscal year 1996 is equal to fee-
                        for-service expenditures for such sector during 
                        fiscal year 1995, increased by the baseline 
                        annual growth rate for such sector of medicare 
                        services for fiscal year 1996 (as specified in 
                        table in subparagraph (C)); and
                          ``(ii) for a subsequent fiscal year is equal 
                        to the baseline-projected medicare expenditures 
                        under this subparagraph for the sector for the 
                        previous fiscal year increased by the baseline 
                        annual growth rate for such sector for the 
                        fiscal year involved (as specified in such 
                        table).
                  ``(C) Baseline annual growth rates.--The following 
                table specifies the baseline annual growth rates for 
                each of the sectors for different fiscal years:
      

----------------------------------------------------------------------------------------------------------------
                                                         Baseline annual growth rates for fiscal year--         
                                               -----------------------------------------------------------------
         ``For the following sector--                                                                  2002 and 
                                                  1996     1997     1998     1999     2000     2001   thereafter
----------------------------------------------------------------------------------------------------------------
(A) Inpatient hospital services...............     5.7%     5.6%     6.0%     6.1%     5.7%     5.5%       5.2% 
(B) Home health services......................    17.2%    15.1%    11.7%     9.1%     8.4%     8.1%       7.9% 
(C) Extended care services....................    19.7%    12.3%     9.3%     8.7%     8.6%     8.4%       8.0% 
(D) Hospice care..............................    32.0%    24.0%    18.0%    15.0%    12.0%    10.0%       9.0% 
(E) Physicians' services......................    12.4%     9.7%     8.7%     9.0%     9.3%     9.6%      10.1% 
(F) Outpatient hospital services..............    14.7%    13.9%    14.5%    15.0%    14.1%    13.9%      14.0% 
(G) Durable medical equipment and supplies....    16.1%    15.5%    13.7%    12.4%    13.2%    13.9%      14.5% 
(H) Diagnostic tests..........................    13.1%    11.3%    11.0%    11.4%    11.4%    11.5%      11.9% 
(I) Other items and services..................    11.2%    10.2%    10.9%    12.0%    11.6%    11.6%      11.8% 
----------------------------------------------------------------------------------------------------------------

  ``(d) Manner of Payment Adjustment.--
          ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, the Secretary shall apply a payment reduction 
        for a sector for a fiscal year in such a manner as to--
                  ``(A) make a change in payment rates (to the maximum 
                extent practicable) at the time payment rates are 
                otherwise changed or subject to change for that fiscal 
                year; and
                  ``(B) provide for the full appropriate adjustment so 
                that the fee-for-service expenditures for the sector 
                for the fiscal year will approximate (and not exceed) 
                the allotment for the sector for the fiscal year.
          ``(2) Taking into account volume and cash flow.--In providing 
        for an adjustment in payments under this subsection for a 
        sector for a fiscal year, the Secretary shall take into account 
        (in a manner consistent with actuarial projections)--
                  ``(A) the impact of such an adjustment on the volume 
                or type of services provided in such sector (and other 
                sectors), and
                  ``(B) the fact that an adjustment may apply to items 
                and services furnished in a fiscal year (payment for 
                which may occur in a subsequent fiscal year),
        in a manner that is consistent with assuring that total fee-
        for-services expenditures for each sector for the fiscal year 
        will not exceed the allotment under subsection (c)(1) for such 
        sector for such year.
          ``(3) Proportionality of reductions within a sector.--In 
        making adjustments under this subsection in payment for items 
        and services included within a sector of medicare services for 
        a fiscal year, the Secretary shall provide for such an 
        adjustment that results (to the maximum extent feasible) in the 
        same percentage reductions in aggregate Federal payments under 
        parts A and B for the different classes of items and services 
        included within the sector for the fiscal year.
          ``(4) Application to payments made based on prospective 
        payment rates determined on a fiscal year basis.--
                  ``(A) In general.--In applying subsection (a) with 
                respect to items and services for which payment is made 
                under part A or B on the basis of rates that are 
                established on a prospective basis for (and in advance 
                of) a fiscal year, the Secretary shall provide for the 
                payment adjustment under such subsection through an 
                appropriate reduction in such rates established for 
                items and services furnished (or, in the case of 
                payment for operating costs of inpatient hospital 
                services of subsection (d) hospitals and subsection (d) 
                Puerto Rico hospitals (as defined in paragraphs (1)(B) 
                and (9)(A) of section 1886(d)), discharges occurring) 
                during such year.
                  ``(B) Description of application to specific 
                services.--The payment adjustment described in 
                subparagraph (A) applies for a fiscal year to at least 
                the following:
                          ``(i) Update factor for payment for operating 
                        costs of inpatient hospital services of pps 
                        hospitals.--To the computation of the 
                        applicable percentage increase specified in 
                        section 1886(d)(3)(B)(i) for discharges 
                        occurring in the fiscal year.
                          ``(ii) Home health services.--To the extent 
                        payment amounts for home health services are 
                        based on per visit payment rates under section 
                        1894, to the computation of the increase in the 
                        national per visit payment rates established 
                        for the year under section 1894(b)(2)(B).
                          ``(iii) Hospice care.--To the update of 
                        payment rates for hospice care under section 
                        1814(i) for services furnished during the 
                        fiscal year.
                          ``(iv) Update factor for payment of operating 
                        costs of inpatient hospital services of pps-
                        exempt hospitals.--To the computation of the 
                        target amount under section 1886(b)(3) for 
                        discharges occurring during the fiscal year.
                          ``(v) Covered non-routine services of skilled 
                        nursing facilities.--To the computation of the 
                        facility per stay limits for the year under 
                        section 1888A(d) for covered non-routine 
                        services of a skilled nursing facility (as 
                        described in such section).
          ``(5) Application to payments made based on prospective 
        payment rates determined on a calendar year basis.--
                  ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                rates that are established on a prospective basis for 
                (and in advance of) a calendar year, the Secretary 
                shall provide for the payment adjustment under such 
                subsection through an appropriate reduction in such 
                rates established for items and services furnished at 
                any time during such calendar year as follows:
                          ``(i) For fiscal year 1997, the reduction 
                        shall be made for payment rates during calendar 
                        year 1997 in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of calendar year 1997.
                          ``(ii) For a subsequent fiscal year, the 
                        reduction shall be made for payment rates 
                        during the calendar year in which the fiscal 
                        year ends in a manner so as to achieve the 
                        necessary payment reductions for such fiscal 
                        year for items and services furnished during 
                        the first 3 quarters of the calendar year, but 
                        also taking into account the payment reductions 
                        made in the first quarter of the fiscal year 
                        resulting from payment reductions made under 
                        this paragraph for the previous calendar year.
                          ``(iii) Payment rate reductions effected 
                        under this subparagraph for a calendar year and 
                        applicable to the last 3 quarters of the fiscal 
                        year in which the calendar year ends shall 
                        continue to apply during the first quarter of 
                        the succeeding fiscal year.
                  ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                          ``(i) Update in conversion factor for 
                        physicians' services.--To the computation of 
                        the conversion factor under subsection (d) of 
                        section 1848 used in the fee schedule 
                        established under subsection (b) of such 
                        section, for items and services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
                          ``(ii) Payment rates for other health care 
                        professionals.--To the computation of payments 
                        for professional services of certified 
                        registered nurse anesthetists under section 
                        1833(l), nurse midwives, physician assistants, 
                        nurse practitioners and clinical nurse 
                        specialists under section 1833(r), clinical 
                        psychologists, clinical social workers, 
                        physical or occupational therapists, and any 
                        other health professionals for which payment 
                        rates are based (in whole or in part) on 
                        payments for physicians' services, for services 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                          ``(iii) Update in lab fee schedule.--To the 
                        computation of the fee schedule amount under 
                        section 1833(h)(2) for clinical diagnostic 
                        laboratory services furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(iv) Update in reasonable charges for 
                        vaccines.--To the computation of the reasonable 
                        charge for vaccines described in section 
                        1861(s)(10) for vaccines furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(v) Durable medical equipment-related 
                        items.--To the computation of the payment basis 
                        under section 1834(a)(1)(B) for covered items 
                        described in section 1834(a)(13), for items 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                          ``(vi) Radiologist services.--To the 
                        computation of conversion factors for 
                        radiologist services under section 1834(b), for 
                        services furnished during the calendar year in 
                        which the fiscal year ends.
                          ``(vii) Screening mammography.--To the 
                        computation of payment rates for screening 
                        mammography under section 1834(c)(1)(C)(ii), 
                        for screening mammography performed during the 
                        calendar year in which the fiscal year ends.
                          ``(viii) Prosthetics and orthotics.--To the 
                        computation of the amount to be recognized 
                        under section 1834(h) for payment for 
                        prosthetic devices and orthotics and 
                        prosthetics, for items furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(ix) Surgical dressings.--To the 
                        computation of the payment amount referred to 
                        in section 1834(i)(1)(B) for surgical 
                        dressings, for items furnished during the 
                        calendar year in which the fiscal year ends.
                          ``(x) Parenteral and enteral nutrition.--To 
                        the computation of reasonable charge screens 
                        for payment for parenteral and enteral 
                        nutrition under section 1834(h), for nutrients 
                        furnished during the calendar year in which the 
                        fiscal year ends.
                          ``(xi) Ambulance services.--To the 
                        computation of limits on reasonable charges for 
                        ambulance services, for services furnished 
                        during the calendar year in which the fiscal 
                        year ends.
          ``(6) Application to payments made based on costs during a 
        cost reporting period.--
                  ``(A) In general.--In applying subsection (a) for a 
                fiscal year with respect to items and services for 
                which payment is made under part A or B on the basis of 
                costs incurred for items and services in a cost 
                reporting period, the Secretary shall provide for the 
                payment adjustment under such subsection for a fiscal 
                year through an appropriate proportional reduction in 
                the payment for costs for such items and services 
                incurred at any time during each cost reporting period 
                any part of which occurs during the fiscal year 
                involved, but only (for each such cost reporting 
                period) in the same proportion as the fraction of the 
                cost reporting period that occurs during the fiscal 
                year involved.
                  ``(B) Application in specific cases.--The payment 
                adjustment described in subparagraph (A) applies for a 
                fiscal year to at least the following:
                          ``(i) Capital-related costs of hospital 
                        services.--To the computation of payment 
                        amounts for inpatient and outpatient hospital 
                        services under sections 1886(g) and 1861(v) for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                          ``(ii) Operating costs for pps-exempt 
                        hospitals.--To the computation of payment 
                        amounts under section 1886(b) for operating 
                        costs of inpatient hospital services of PPS-
                        exempt hospitals for portions of cost reporting 
                        periods occurring during the fiscal year.
                          ``(iii) Direct graduate medical education.--
                        To the computation of payment amounts under 
                        section 1886(h) for reasonable costs of direct 
                        graduate medical education costs for portions 
                        of cost reporting periods occurring during the 
                        fiscal year.
                          ``(iv) Inpatient rural primary care hospital 
                        services.--To the computation of payment 
                        amounts under section 1814(j) for inpatient 
                        rural primary care hospital services for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                          ``(v) Extended care services of a skilled 
                        nursing facility.--To the computation of 
                        payment amounts under section 1861(v) for post-
                        hospital extended care services of a skilled 
                        nursing facility (other than covered non-
                        routine services subject to section 1888A) for 
                        portions of cost reporting periods occurring 
                        during the fiscal year.
                          ``(vi) Reasonable cost contracts.--To the 
                        computation of payment amounts under section 
                        1833(a)(1)(A) for organizations for portions of 
                        cost reporting periods occurring during the 
                        fiscal year.
                          ``(vii) Home health services.--Subject to 
                        paragraph (4)(B)(ii), for payment amounts for 
                        home health services, for portions of cost 
                        reporting periods occurring during such fiscal 
                        year.
          ``(7) Other.--In applying subsection (a) for a fiscal year 
        with respect to items and services for which payment is made 
        under part A or B on a basis not described in a previous 
        paragraph of this subsection, the Secretary shall provide for 
        the payment adjustment under such subsection through an 
        appropriate proportional reduction in the payments (or payment 
        bases for items and services furnished) during the fiscal year.
          ``(8) Adjustment of payment limits.--The Secretary shall 
        provide for such proportional adjustment in any limits on 
        payment established under part A or B for payment for items and 
        services within a sector as may be appropriate based on (and in 
        order to properly carry out) the adjustment on the amount of 
        payment under this subsection in the sector.
          ``(9) References to payment rates.--Except as the Secretary 
        may provide, any reference in this title (other than this 
        section) to a payment rate is deemed a reference to such a rate 
        as adjusted under this subsection.
  ``(e) Publication of Determinations; Judicial Review.--
          ``(1) One-time publication of sectors and general payment 
        adjustment methodology.--Not later than October 1, 1996, the 
        Secretary shall publish in the Federal Register the 
        classification of medicare items and services into the sectors 
        of medicare services under subsection (b) and the general 
        methodology to be used in applying payment adjustments to the 
        different classes of items and services within the sectors.
          ``(2) Inclusion of information in president's budget.--
                  ``(A) In general.--With respect to fiscal years 
                beginning with fiscal year 1999, the President shall 
                include in the budget submitted under section 1105 of 
                title 31, United States Code, information on--
                          ``(i) the fee-for-service expenditures, 
                        within each sector, for the second previous 
                        fiscal year, and how such expenditures compare 
                        to the adjusted sector allotment for that 
                        sector for that fiscal year; and
                          ``(ii) actual annual growth rates for fee-
                        for-service expenditures in the different 
                        sectors in the second previous fiscal year.
                  ``(B) Recommendations regarding growth factors.--The 
                President may include in such budget for a fiscal year 
                (beginning with fiscal year 1998) recommendations 
                regarding percentages that should be applied (for one 
                or more fiscal years beginning with that fiscal year) 
                instead of the baseline annual growth rates under 
                subsection (c)(3)(C). Such recommendations shall take 
                into account medically appropriate practice patterns.
          ``(3) Determinations concerning payment adjustments.--
                  ``(A) Recommendations of commission.--By not later 
                than March 1 of each year (beginning with 1997), the 
                Medicare Payment Review Commission shall submit to the 
                Secretary and the Congress a report that analyzes the 
                previous operation (if any) of this section and that 
                includes recommendations concerning the manner in which 
                this section should be applied for the following fiscal 
                year.
                  ``(B) Preliminary notice by secretary.--Not later 
                than May 15 preceding the beginning of each fiscal year 
                (beginning with fiscal year 1998), the Secretary shall 
                publish in the Federal Register a notice containing the 
                Secretary's preliminary determination, for each sector 
                of medicare services, concerning the following:
                          ``(i) The projected allotment under 
                        subsection (c) for such sector for the fiscal 
                        year.
                          ``(ii) Whether there will be a payment 
                        adjustment for items and services included in 
                        such sector for the fiscal year under 
                        subsection (a).
                          ``(iii) If there will be such an adjustment, 
                        the size of such adjustment and the methodology 
                        to be used in making such a payment adjustment 
                        for classes of items and services included in 
                        such sector.
                          ``(iv) Beginning with fiscal year 1999, the 
                        fee-for-service expenditures for such sector 
                        for the second preceding fiscal year.
                Such notice shall include an explanation of the basis 
                for such determination. Determinations under this 
                subparagraph and subparagraph (C) shall be based on the 
                best data available at the time of such determinations.
                  ``(C) Final determination.--Not later than September 
                1 preceding the beginning of each fiscal year 
                (beginning with fiscal year 1998), the Secretary shall 
                publish in the Federal Register a final determination, 
                for each sector of medicare services, concerning the 
                matters described in subparagraph (B) and an 
                explanation of the reasons for any differences between 
                such determination and the preliminary determination 
                for such fiscal year published under subparagraph (B).
          ``(4) Limitation on administrative or judicial review.--There 
        shall be no administrative or judicial review under section 
        1878 or otherwise of--
                  ``(A) the classification of items and services among 
                the sectors of medicare services under subsection (b),
                  ``(B) the determination of the amounts of allotments 
                for the different sectors of medicare services under 
                subsection (c),
                  ``(C) the determination of the amount (or method of 
                application) of any payment adjustment under subsection 
                (d), or
                  ``(D) any adjustment in an allotment effected under 
                subsection (h).
  ``(f) Fee-for-Service Expenditures Defined.--In this section, the 
term `fee-for-service expenditures', for items and services within a 
sector of medicare services in a fiscal year, means amounts payable for 
such items and services which are furnished during the fiscal year, 
and--
          ``(1) includes types of expenses otherwise reimbursable under 
        parts A and B (including administrative costs incurred by 
        organizations described in sections 1816 and 1842) with respect 
        to such items and services, and
          ``(2) does not include amounts paid under part C.
  ``(g) Expedited Process for Adjustment of Sector Growth Rates.--
          ``(1) Optional inclusion of legislative proposal.--The 
        President may include in recommendations under subsection 
        (e)(2)(B) submitted with respect to a fiscal year a specific 
        legislative proposal that provides only for the substitution of 
        percentages specified in the proposal for one or more of the 
        baseline annual growth rates (specified in the table in 
        subsection (c)(3)(C) or in a previous legislative proposal 
        under this subsection) for that fiscal year or any subsequent 
        fiscal year.
          ``(2) Congressional consideration.--
                  ``(A) In general.--The percentages contained in a 
                legislative proposal submitted under paragraph (1) 
                shall apply under this section if a joint resolution 
                (described in subparagraph (B)) approving such proposal 
                is enacted, in accordance with the provisions of 
                subparagraph (C), before the end of the 60-day period 
                beginning on the date on which such proposal was 
                submitted. For purposes of applying the preceding 
                sentence and subparagraphs (B) and (C), the days on 
                which either House of Congress is not in session 
                because of an adjournment of more than three days to a 
                day certain shall be excluded in the computation of a 
                period.
                  ``(B) Joint resolution of approval.--A joint 
                resolution described in this subparagraph means only a 
                joint resolution which is introduced within the 10-day 
                period beginning on the date on which the President 
                submits a proposal under paragraph (1) and--
                          ``(i) which does not have a preamble;
                          ``(ii) the matter after the resolving clause 
                        of which is as follows: `That Congress approves 
                        the proposal of the President providing for 
                        substitution of percentages for certain 
                        baseline annual growth rates under section 1895 
                        of the Social Security Act, as submitted by the 
                        President on ______________.', the blank space 
                        being filled in with the appropriate date; and
                          ``(iii) the title of which is as follows: 
                        `Joint resolution approving Presidential 
                        proposal to substitute certain specified 
                        percentages for baseline annual growth rates 
                        under section 1895 of the Social Security Act, 
                        as submitted by the President on 
                        ______________.', the blank space being filled 
                        in with the appropriate date.
                  ``(C) Procedures for consideration of resolution of 
                approval.--Subject to subparagraph (D), the provisions 
                of section 2908 (other than subsection (a)) of the 
                Defense Base Closure and Realignment Act of 1990 shall 
                apply to the consideration of a joint resolution 
                described in subparagraph (B) in the same manner as 
                such provisions apply to a joint resolution described 
                in section 2908(a) of such Act.
                  ``(D) Special rules.--For purposes of applying 
                subparagraph (C) with respect to such provisions--
                          ``(i) any reference to the Committee on Armed 
                        Services of the House of Representatives shall 
                        be deemed a reference to an appropriate 
                        Committee of the House of Representatives 
                        (specified by the Speaker of the House of 
                        Representatives at the time of submission of a 
                        legislative proposal under paragraph (1)) and 
                        any reference to the Committee on Armed 
                        Services of the Senate shall be deemed a 
                        reference to the Committee on Finance of the 
                        Senate; and
                          ``(ii) any reference to the date on which the 
                        President transmits a report shall be deemed a 
                        reference to the date on which the President 
                        submits the legislative proposal under 
                        paragraph (1).
  ``(h) Look-Back Adjustment in Allotments to Reflect Actual 
Expenditures.--
          ``(1) In general.--If the Secretary determines under 
        subsection (e)(3)(B) with respect to a particular fiscal year 
        (beginning with fiscal year 1999) that the fee-for-service 
        expenditures for a sector of medicare services for the second 
        preceding fiscal year--
                  ``(A) exceeded the adjusted allotment for such sector 
                for such year (as defined in paragraph (2)), then the 
                allotment for the sector for the particular fiscal year 
                shall be reduced by 133\1/3\ percent of the amount of 
                such excess, or
                  ``(B) was less than the adjusted allotment for such 
                sector for such year, then the allotment for the sector 
                for the particular fiscal year shall be increased by 
                the amount of such deficit.
          ``(2) Adjusted allotment.--The adjusted allotment under this 
        paragraph for a sector for a fiscal year is--
                  ``(A) the amount that would be computed as the 
                allotment under subsection (c) for the sector for the 
                fiscal year if the actual amount of payments made in 
                the fiscal year under the MedicarePlus program under 
                part C in the fiscal year were substituted for the 
                amount described in subsection (c)(2)(A)(ii) for that 
                fiscal year,
                  ``(B) adjusted to take into account the amount of any 
                adjustment under paragraph (1) for that fiscal year 
                (based on expenditures in the second previous fiscal 
                year).
  ``(i) Prospective Application of Certain National Coverage 
Determinations.--In the case of a national coverage determination that 
the Secretary projects will result in significant additional 
expenditures under this title (taking into account any substitution for 
existing procedures or technologies), such determination shall not 
become effective before the beginning of the fiscal year that begins 
after the date of such determination and shall apply to contracts under 
part C entered into (or renewed) after the date of such 
determination.''.
  (b) Report of Trustees on Growth Rate in Part A Expenditures.--
Section 1817 (42 U.S.C. 1395i) is amended by adding at the end the 
following new subsection:
  ``(k) Each annual report provided in subsection (b)(2) shall include 
information regarding the annual rate of growth in program expenditures 
that would be required to maintain the financial solvency of the Trust 
Fund and the extent to which the provisions of section 1895 restrain 
the rate of growth of expenditures under this part in order to achieve 
such solvency.''.

                 PART 4--ADMINISTRATIVE SIMPLIFICATION

SEC. 15731. STANDARDS FOR MEDICARE INFORMATION TRANSACTIONS AND DATA 
                    ELEMENTS.

  Title XVIII, as amended by section 15031, is amended by inserting 
after section 1806 the following new section:
  ``standards for medicare information transactions and data elements
  ``Sec. 1807. (a) Adoption of Standards for Data Elements.--
          ``(1) In general.--Pursuant to subsection (b), the Secretary 
        shall adopt standards for information transactions and data 
        elements of medicare information and modifications to the 
        standards under this section that are--
                  ``(A) consistent with the objective of reducing the 
                administrative costs of providing and paying for health 
                care; and
                  ``(B) developed or modified by a standard setting 
                organization (as defined in subsection (h)(8)).
          ``(2) Special rule relating to data elements.--The Secretary 
        may adopt or modify a standard relating to data elements that 
        is different from the standard developed by a standard setting 
        organization, if--
                  ``(A) the different standard or modification will 
                substantially reduce administrative costs to health 
                care providers and health plans compared to the 
                alternative; and
                  ``(B) the standard or modification is promulgated in 
                accordance with the rulemaking procedures of subchapter 
                III of chapter 5 of title 5, United States Code.
          ``(3) Security standards for health information network.--
                  ``(A) In general.--Each person, who maintains or 
                transmits medicare information or data elements of 
                medicare information and is subject to this section, 
                shall maintain reasonable and appropriate 
                administrative, technical, and physical safeguards--
                          ``(i) to ensure the integrity and 
                        confidentiality of the information;
                          ``(ii) to protect against any reasonably 
                        anticipated--
                                  ``(I) threats or hazards to the 
                                security or integrity of the 
                                information; and
                                  ``(II) unauthorized uses or 
                                disclosures of the information; and
                          ``(iii) to otherwise ensure compliance with 
                        this section by the officers and employees of 
                        such person.
                  ``(B) Security standards.--The Secretary shall 
                establish security standards and modifications to such 
                standards with respect to medicare information network 
                services, health plans, and health care providers 
                that--
                          ``(i) take into account--
                                  ``(I) the technical capabilities of 
                                record systems used to maintain 
                                medicare information;
                                  ``(II) the costs of security 
                                measures;
                                  ``(III) the need for training persons 
                                who have access to medicare 
                                information; and
                                  ``(IV) the value of audit trails in 
                                computerized record systems; and
                          ``(ii) ensure that a medicare information 
                        network service, if it is part of a larger 
                        organization, has policies and security 
                        procedures which isolate the activities of such 
                        service with respect to processing information 
                        in a manner that prevents unauthorized access 
                        to such information by such larger 
                        organization.
                The security standards established by the Secretary 
                shall be based on the standards developed or modified 
                by standard setting organizations. If such standards do 
                not exist, the Secretary shall rely on the 
                recommendations of the Medicare Information Advisory 
                Committee (established under subsection (g)) and shall 
                consult with appropriate government agencies and 
                private organizations in accordance with paragraph (5).
          ``(4) Implementation specifications.--The Secretary shall 
        establish specifications for implementing each of the standards 
        and the modifications to the standards adopted pursuant to 
        paragraph (1) or (3).
          ``(5) Assistance to the secretary.--In complying with the 
        requirements of this section, the Secretary shall rely on 
        recommendations of the Medicare Information Advisory Committee 
        established under subsection (g) and shall consult with 
        appropriate Federal and State agencies and private 
        organizations. The Secretary shall publish in the Federal 
        Register the recommendations of the Medicare Information 
        Advisory Committee regarding the adoption of a standard under 
        this section.
  ``(b) Standards for Information Transactions and Data Elements.--
          ``(1) In general.--The Secretary shall adopt standards for 
        transactions and data elements to make medicare information 
        uniformly available to be exchanged electronically, that is--
                  ``(A) appropriate for the following financial and 
                administrative transactions: claims (including 
                coordination of benefits) or equivalent encounter 
                information, enrollment and disenrollment, eligibility, 
                premium payments, and referral certification and 
                authorization; and
                  ``(B) related to other financial and administrative 
                transactions determined appropriate by the Secretary 
                consistent with the goals of improving the operation of 
                the health care system and reducing administrative 
                costs.
          ``(2) Unique health identifiers.--
                  ``(A) Adoption of standards.--The Secretary shall 
                adopt standards providing for a standard unique health 
                identifier for each individual, employer, health plan, 
                and health care provider for use in the medicare 
                information system. In developing unique health 
                identifiers for each health plan and health care 
                provider, the Secretary shall take into account 
                multiple uses for identifiers and multiple locations 
                and specialty classifications for health care 
                providers.
                  ``(B) Penalty for improper disclosure.--A person who 
                knowingly uses or causes to be used a unique health 
                identifier under subparagraph (A) for a purpose that is 
                not authorized by the Secretary shall--
                          ``(i) be fined not more than $50,000, 
                        imprisoned not more than 1 year, or both; or
                          ``(ii) if the offense is committed under 
                        false pretenses, be fined not more than 
                        $100,000, imprisoned not more than 5 years, or 
                        both.
          ``(3) Code sets.--
                  ``(A) In general.--The Secretary, in consultation 
                with the Medicare Information Advisory Committee, 
                experts from the private sector, and Federal and State 
                agencies, shall--
                          ``(i) select code sets for appropriate data 
                        elements from among the code sets that have 
                        been developed by private and public entities; 
                        or
                          ``(ii) establish code sets for such data 
                        elements if no code sets for the data elements 
                        have been developed.
                  ``(B) Distribution.--The Secretary shall establish 
                efficient and low-cost procedures for distribution 
                (including electronic distribution) of code sets and 
                modifications made to such code sets under subsection 
                (c)(2).
          ``(4) Electronic signature.--
                  ``(A) In general.--The Secretary, after consultation 
                with the Medicare Information Advisory Committee, shall 
                promulgate regulations specifying procedures for the 
                electronic transmission and authentication of 
                signatures, compliance with which will be deemed to 
                satisfy Federal and State statutory requirements for 
                written signatures with respect to information 
                transactions required by this section and written 
                signatures on enrollment and disenrollment forms.
                  ``(B) Payments for services and premiums.--Nothing in 
                this section shall be construed to prohibit the payment 
                of health care services or health plan premiums by 
                debit, credit, payment card or numbers, or other 
                electronic means.
          ``(5) Transfer of information between health plans.--The 
        Secretary shall develop rules and procedures--
                  ``(A) for determining the financial liability of 
                health plans when health care benefits are payable 
                under two or more health plans; and
                  ``(B) for transferring among health plans appropriate 
                standard data elements needed for the coordination of 
                benefits, the sequential processing of claims, and 
                other data elements for individuals who have more than 
                one health plan.
          ``(6) Coordination of benefits.--If, at the end of the 5-year 
        period beginning on the date of the enactment of this section, 
        the Secretary determines that additional transaction standards 
        for coordinating benefits are necessary to reduce 
        administrative costs or duplicative (or inappropriate) payment 
        of claims, the Secretary shall establish further transaction 
        standards for the coordination of benefits between health 
        plans.
          ``(7) Protection of trade secrets.--Except as otherwise 
        required by law, the standards adopted under this section shall 
        not require disclosure of trade secrets or confidential 
        commercial information by an entity operating a medicare 
        information network.
  ``(c) Timetables for Adoption of Standards.--
          ``(1) Initial standards.--Not later than 18 months after the 
        date of the enactment of this section, the Secretary shall 
        adopt standards relating to the information transactions, data 
        elements of medicare information and security described in 
        subsections (a) and (b).
          ``(2) Additions and modifications to standards.--
                  ``(A) In general.--The Secretary shall review the 
                standards adopted under this section and shall adopt 
                additional or modified standards, that have been 
                developed or modified by a standard setting 
                organization, as determined appropriate, but not more 
                frequently than once every 12 months. Any addition or 
                modification to such standards shall be completed in a 
                manner which minimizes the disruption and cost of 
                compliance.
                  ``(B) Additions and modifications to code sets.--
                          ``(i) In general.--The Secretary shall ensure 
                        that procedures exist for the routine 
                        maintenance, testing, enhancement, and 
                        expansion of code sets.
                          ``(ii) Additional rules.--If a code set is 
                        modified under this paragraph, the modified 
                        code set shall include instructions on how data 
                        elements of medicare information that were 
                        encoded prior to the modification may be 
                        converted or translated so as to preserve the 
                        informational value of the data elements that 
                        existed before the modification. Any 
                        modification to a code set under this paragraph 
                        shall be implemented in a manner that minimizes 
                        the disruption and cost of complying with such 
                        modification.
  ``(d) Requirements for Health Plans.--
          ``(1) In general.--If a person desires to conduct any of the 
        information transactions described in subsection (b)(1) with a 
        health plan as a standard transaction, the health plan shall 
        conduct such standard transaction in a timely manner and the 
        information transmitted or received in connection with such 
        transaction shall be in the form of standard data elements of 
        medicare information.
          ``(2) Satisfaction of requirements.--A health plan may 
        satisfy the requirement imposed on such plan under paragraph 
        (1) by directly transmitting standard data elements of medicare 
        information or submitting nonstandard data elements to a 
        medicare information network service for processing into 
        standard data elements and transmission.
          ``(3) Timetables for compliance with requirements.--Not later 
        than 24 months after the date on which standards are adopted 
        under subsections (a) and (b) with respect to any type of 
        information transaction or data element of medicare information 
        or with respect to security, a health plan shall comply with 
        the requirements of this section with respect to such 
        transaction or data element.
          ``(4) Compliance with modified standards.--If the Secretary 
        adopts a modified standard under subsection (a) or (b), a 
        health plan shall be required to comply with the modified 
        standard at such time as the Secretary determines appropriate 
        taking into account the time needed to comply due to the nature 
        and extent of the modification. However, the time determined 
        appropriate under the preceding sentence shall be not earlier 
        than the last day of the 180-day period beginning on the date 
        such modified standard is adopted. The Secretary may extend the 
        time for compliance for small health plans, if the Secretary 
        determines such extension is appropriate.
  ``(e) General Penalty for Failure To Comply With Requirements and 
Standards.--
          ``(1) General penalty.--
                  ``(A) In general.--Except as provided in paragraph 
                (2), the Secretary shall impose on any person that 
                violates a requirement or standard--
                          ``(i) with respect to medicare information 
                        transactions, data elements of medicare 
                        information, or security imposed under 
                        subsection (a) or (b); or
                          ``(ii) with respect to health plans imposed 
                        under subsection (d);
                a penalty of not more than $100 for each such violation 
                of a specific standard or requirement, but the total 
                amount imposed for all such violations of a specific 
                standard or requirement during the calendar year shall 
                not exceed $25,000.
                  ``(B) Procedures.--The provisions of section 1128A 
                (other than subsections (a) and (b) and the second 
                sentence of subsection (f)) shall apply to the 
                imposition of a civil money penalty under this 
                paragraph in the same manner as such provisions apply 
                to the imposition of a penalty under such section 
                1128A.
                  ``(C) Denial of payment.--Except as provided in 
                paragraph (2), the Secretary may deny payment under 
                this title for an item or service furnished by a person 
                if the person fails to comply with an applicable 
                requirement or standard for medicare information 
                relating to that item or service.
          ``(2) Limitations.--
                  ``(A) Noncompliance not discovered.--A penalty may 
                not be imposed under paragraph (1) if it is established 
                to the satisfaction of the Secretary that the person 
                liable for the penalty did not know, and by exercising 
                reasonable diligence would not have known, that such 
                person failed to comply with the requirement or 
                standard described in paragraph (1).
                  ``(B) Failures due to reasonable cause.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), a penalty may not be imposed under 
                        paragraph (1) if--
                                  ``(I) the failure to comply was due 
                                to reasonable cause and not to willful 
                                neglect; and
                                  ``(II) the failure to comply is 
                                corrected during the 30-day period 
                                beginning on the first date the person 
                                liable for the penalty knew, or by 
                                exercising reasonable diligence would 
                                have known, that the failure to comply 
                                occurred.
                          ``(ii) Extension of period.--
                                  ``(I) No penalty.--The period 
                                referred to in clause (i)(II) may be 
                                extended as determined appropriate by 
                                the Secretary based on the nature and 
                                extent of the failure to comply.
                                  ``(II) Assistance.--If the Secretary 
                                determines that a health plan failed to 
                                comply because such plan was unable to 
                                comply, the Secretary may provide 
                                technical assistance to such plan 
                                during the period described in clause 
                                (i)(II). Such assistance shall be 
                                provided in any manner determined 
                                appropriate by the Secretary.
                  ``(C) Reduction.--In the case of a failure to comply 
                which is due to reasonable cause and not to willful 
                neglect, any penalty under paragraph (1) that is not 
                entirely waived under subparagraph (B) may be waived to 
                the extent that the payment of such penalty would be 
                excessive relative to the compliance failure involved.
  ``(f) Effect on State Law.--
          ``(1) General effect.--
                  ``(A) General rule.--Except as provided in 
                subparagraph (B), a provision, requirement, or standard 
                under this section shall supersede any contrary 
                provision of State law, including a provision of State 
                law that requires medical or health plan records 
                (including billing information) to be maintained or 
                transmitted in written rather than electronic form.
                  ``(B) Exceptions.--A provision, requirement, or 
                standard under this section shall not supersede a 
                contrary provision of State law if the Secretary 
                determines that the provision of State law should be 
                continued for any reason, including for reasons 
                relating to prevention of fraud and abuse or regulation 
                of controlled substances.
          ``(2) Public health reporting.--Nothing in this section shall 
        be construed to invalidate or limit the authority, power, or 
        procedures established under any law providing for the 
        reporting of disease or injury, child abuse, birth, or death, 
        public health surveillance, or public health investigation or 
        intervention.
  ``(g) Medicare Information Advisory Committee.--
          ``(1) Establishment.--There is established a committee to be 
        known as the Medicare Information Advisory Committee (in this 
        subsection referred to as the `committee').
          ``(2) Duties.--The committee shall--
                  ``(A) advise the Secretary in the development of 
                standards under this section; and
                  ``(B) be generally responsible for advising the 
                Secretary and the Congress on the status and the future 
                of the medicare information network.
          ``(3) Membership.--
                  ``(A) In general.--The committee shall consist of 9 
                members of whom--
                          ``(i) 3 shall be appointed by the President;
                          ``(ii) 3 shall be appointed by the Speaker of 
                        the House of Representatives after consultation 
                        with the minority leader of the House of 
                        Representatives; and
                          ``(iii) 3 shall be appointed by the President 
                        pro tempore of the Senate after consultation 
                        with the minority leader of the Senate.
                The appointments of the members shall be made not later 
                than 60 days after the date of the enactment of this 
                section. The President shall designate 1 member as the 
                Chair.
                  ``(B) Expertise.--The membership of the committee 
                shall consist of individuals who are of recognized 
                standing and distinction in the areas of information 
                systems, information networking and integration, 
                consumer health, or health care financial management, 
                and who possess the demonstrated capacity to discharge 
                the duties imposed on the committee.
                  ``(C) Terms.--Each member of the committee shall be 
                appointed for a term of 5 years, except that the 
                members first appointed shall serve staggered terms 
                such that the terms of not more than 3 members expire 
                at one time.
                  ``(D) Initial meeting.--Not later than 30 days after 
                the date on which a majority of the members have been 
                appointed, the committee shall hold its first meeting.
          ``(4) Reports.--Not later than 1 year after the date of the 
        enactment of this section, and annually thereafter, the 
        committee shall submit to Congress and the Secretary a report 
        regarding--
                  ``(A) the extent to which entities using the medicare 
                information network are meeting the standards adopted 
                under this section and working together to form an 
                integrated network that meets the needs of its users;
                  ``(B) the extent to which such entities are meeting 
                the security standards established pursuant to this 
                section and the types of penalties assessed for 
                noncompliance with such standards;
                  ``(C) any problems that exist with respect to 
                implementation of the medicare information network; and
                  ``(D) the extent to which timetables under this 
                section are being met.
        Reports made under this subsection shall be made available to 
        health care providers, health plans, and other entities that 
        use the medicare information network to exchange medicare 
        information.
  ``(h) Definitions.--For purposes of this section:
          ``(1) Code set.--The term `code set' means any set of codes 
        used for encoding data elements, such as tables of terms, 
        enrollment information, and encounter data.
          ``(2) Coordination of benefits.--The term `coordination of 
        benefits' means determining and coordinating the financial 
        obligations of health plans when health care benefits are 
        payable under such a plan and under this title (including under 
        a MedicarePlus product).
          ``(3) Medicare information.--The term `medicare information' 
        means any information that relates to the enrollment of 
        individuals under this title (including information relating to 
        elections of MedicarePlus products under section 1805) and the 
        provision of health benefits (including benefits provided under 
        such products) under this title.
          ``(4) Medicare information network.--The term `medicare 
        information network' means the medicare information system that 
        is formed through the application of the requirements and 
        standards established under this section.
          ``(5) Medicare information network service.--The term 
        `medicare information network service' means a public or 
        private entity that--
                  ``(A) processes or facilitates the processing of 
                nonstandard data elements of medicare information into 
                standard data elements;
                  ``(B) provides the means by which persons may meet 
                the requirements of this section; or
                  ``(C) provides specific information processing 
                services.
          ``(6) Health plan.--The term `health plan' means a plan which 
        provides, or pays the cost of, health benefits. Such term 
        includes the following, or any combination thereof:
                  ``(A) Part A or part B of this title, and includes a 
                MedicarePlus product.
                  ``(B) The medicaid program under title XIX and the 
                MediGrant program under title XXI.
                  ``(C) A medicare supplemental policy (as defined in 
                section 1882(g)(1)).
                  ``(D) Worker's compensation or similar insurance.
                  ``(E) Automobile or automobile medical-payment 
                insurance.
                  ``(F) A long-term care policy, other than a fixed 
                indemnity policy.
                  ``(G) The Federal Employees Health Benefit Plan under 
                chapter 89 of title 5, United States Code.
                  ``(H) An employee welfare benefit plan, as defined in 
                section 3(1) of the Employee Retirement Income Security 
                Act of 1974 (29 U.S.C. 1002(1)), but only to the extent 
                the plan is established or maintained for the purpose 
                of providing health benefits.
          ``(7) Individually identifiable medicare information.--The 
        term `individually identifiable medicare information' means 
        medicare enrollment information, including demographic 
        information collected from an individual, that--
                  ``(A) is created or received by a health care 
                provider, health plan, employer, or medicare 
                information network service, and
                  ``(B) identifies an individual.
          ``(8) Standard setting organization.--The term `standard 
        setting organization' means a standard setting organization 
        accredited by the American National Standards Institute.
          ``(9) Standard transaction.--The term `standard transaction' 
        means, when referring to an information transaction or to data 
        elements of medicare information, any transaction that meets 
        the requirements and implementation specifications adopted by 
        the Secretary under subsections (a) and (b).''.

           PART 5--OTHER PROVISIONS RELATING TO PARTS A AND B

SEC. 15741. CLARIFICATION OF MEDICARE COVERAGE OF ITEMS AND SERVICES 
                    ASSOCIATED WITH CERTAIN MEDICAL DEVICES APPROVED 
                    FOR INVESTIGATIONAL USE.

  (a) Coverage.--Nothing in title XVIII of the Social Security Act may 
be construed to prohibit coverage under part A or part B of the 
medicare program of items and services associated with the use of a 
medical device in the furnishing of inpatient or outpatient hospital 
services (including outpatient diagnostic imaging services) for which 
payment may be made under the program solely on the grounds that the 
device is not an approved device, if--
          (1) the device is an investigational device; and
          (2) the device is used instead of either an approved device 
        or a covered procedure.
  (b) Clarification of Payment Amount.--Notwithstanding any other 
provision of title XVIII of the Social Security Act, the amount of 
payment made under the medicare program for any item or service 
associated with the use of an investigational device in the furnishing 
of inpatient or outpatient hospital services (including outpatient 
diagnostic imaging services) for which payment may be made under the 
program may not exceed the amount of the payment which would have been 
made under the program for the item or service if the item or service 
were associated with the use of an approved device or a covered 
procedure.
  (c) Definitions.--In this section--
          (1) the term ``approved device'' means a medical device (or 
        devices) which has been approved for marketing under pre-market 
        approval under the Federal Food, Drug, and Cosmetic Act or 
        cleared for marketing under a 510(k) notice under such Act; and
          (2) the term ``investigational device'' means--
                  (A) a medical device or devices (other than a device 
                described in paragraph (1)) approved for 
                investigational use under section 520(g) of the Federal 
                Food, Drug, and Cosmetic Act, or
                  (B) a product authorized for use under section 505(i) 
                of the Federal Food, Drug, and Cosmetic Act which 
                includes the use of a medical device (or devices) or an 
                investigational combination product under section 
                503(g) of such Act which includes a device (or devices) 
                authorized for use under section 505(i) of such Act.

SEC. 15742. ADDITIONAL EXCLUSION FROM COVERAGE.

  (a) In General.--Section 1862(a) (42 U.S.C. 1395y(a)), as amended by 
section 15525(a)(2) and section 15701(c)(2)(C), is amended--
          (1) by striking ``or'' at the end of paragraph (16),
          (2) by striking the period at the end of paragraph (17) and 
        inserting ``; or'', and
          (3) by inserting after paragraph (17) the following new 
        paragraph:
          ``(18) where such expenses are for items or services, or to 
        assist in the purchase, in whole or in part, of health benefit 
        coverage that includes items or services, for the purpose of 
        causing, or assisting in causing, the death, suicide, 
        euthanasia, or mercy killing of a person.''.
  (b) Effective Date.--The amendments made by subsection (a) shall 
apply to payment for items and services furnished on or after the date 
of the enactment of this Act.

                   Subtitle I--Clinical Laboratories

SEC. 15801. EXEMPTION OF PHYSICIAN OFFICE LABORATORIES.

  Section 353(d) of the Public Health Service Act (42 U.S.C. 263a(d)) 
is amended--
          (1) by redesignating paragraphs (2), (3), and (4) as 
        paragraphs (3), (4), and (5) and by adding after paragraph (1) 
        the following:
          ``(2) Exemption of physician office laboratories.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), a clinical laboratory in a physician's office 
                (including an office of a group of physicians) which is 
                directed by a physician and in which examinations and 
                procedures are either performed by a physician or by 
                individuals supervised by a physician solely as an 
                adjunct to other services provided by the physician's 
                office is exempt from this section.
                  ``(B) Exception.--A clinical laboratory described in 
                subparagraph (A) is not exempt from this section when 
                it performs a pap smear (Papanicolaou Smear) analysis.
                  ``(C) Definition.--For purposes of subparagraph (A), 
                the term `physician' has the same meaning as is 
                prescribed for such term by section 1861(r) of the 
                Social Security Act (42 U.S.C. 1395x(r)).'';
          (2) in paragraph (3) (as so redesignated) by striking ``(3)'' 
        and inserting ``(4)''; and
          (3) in paragraphs (4) and (5) (as so redesignated) by 
        striking ``(2)'' and inserting ``(3)''.

Subtitle J--Lock-Box Provisions for Medicare Part B Savings from Growth 
                               Reductions

SEC. 15901. ESTABLISHMENT OF MEDICARE GROWTH REDUCTION TRUST FUND FOR 
                    PART B SAVINGS.

  Part B of title XVIII is amended by inserting after section 1841 the 
following new section:
                 ``medicare growth reduction trust fund
  ``Sec. 1841A. (a)(1) There is hereby created on the books of the 
Treasury of the United States a trust fund to be known as the `Federal 
Medicare Growth Reduction Trust Fund' (in this section referred to as 
the `Trust Fund'). The Trust Fund shall consist of such gifts and 
bequests as may be made as provided in section 201(i)(1) and amounts 
appropriated under paragraph (2).
  ``(2) There are hereby appropriated to the Trust Fund amounts 
equivalent to 100 percent of the Secretary's estimate of the reductions 
in expenditures under this part that are attributable to the Medicare 
Preservation Act of 1995. The amounts appropriated by the preceding 
sentence shall be transferred from time to time (not less frequently 
than monthly) from the general fund in the Treasury to the Trust Fund.
  ``(3)(A) Subject to subparagraph (B), with respect to monies 
transferred to the Trust Fund, no transfers, authorizations of 
appropriations, or appropriations are permitted.
  ``(B) Beginning with fiscal year 2003, the Secretary may expend funds 
in the Trust Fund to carry out this title, but only to the extent 
provided by Congress in advance through a specific amendment to this 
section.
  ``(b) The provisions of subsections (b) through (e) of section 1841 
shall apply to the Trust Fund in the same manner as they apply to the 
Federal Supplementary Medical Insurance Trust Fund, except that the 
Board of Trustees and Managing Trustee of the Trust Fund shall be 
composed of the members of the Board of Trustees and the Managing 
Trustee, respectively, of the Federal Supplementary Medical Insurance 
Trust Fund.''.

                            I. INTRODUCTION

                         A. Purpose and Summary

     On April 3rd, the Board of Trustees for the Medicare 
Hospital Insurance and Supplementary Medical Insurance trust 
funds urged the Congress to begin a careful examination of the 
Medicare program because both trust funds were facing 
significant financial imbalance in both the short-term and the 
long-term.
     In response to the concerns raised by the Trustees and 
their recommendation for ``prompt, effective, and decisive 
action,'' the Committee on Ways and Means set as its mission to 
preserve, protect, and strengthen Medicare for the program's 
current beneficiaries as well as those generations of working 
Americans who are paying much of the cost of Medicare now and 
will become entitled to Medicare coverage in the future.
     The Committee set as its goals to bring the Hospital 
Insurance (HI) trust fund into balance up to the retirement of 
the baby boom generation, curb unsustainable growth in the 
Supplementary Medical Insurance (SMI) trust fund, develop new 
choices for Medicare beneficiaries that would enhance coverage 
and moderate cost growth, and finally to establish a commission 
to make recommendations to Congress to secure Medicare through 
the baby boom retirement years beginning after 2010.
     H.R. 2425 provides a comprehensive program to meet these 
goals. The bill meets its objectives and brings Medicare into 
financial balance and initiates new Medicare options 
(hereinafter called ``MedicarePlus'') which will improve 
beneficiary choices of health care coverage.
     H.R. 2425 was developed after months of public hearings 
before the Committee on Ways and Means and its Health 
Subcommittee, with testimony from scores of witnesses, 
including seniors, medical providers, actuaries, health 
economists, health plan professionals, and other experts in 
health care and Medicare policy.

                 B. Background and Need for Legislation

     According to the 1995 report of the Board of Trustees, the 
outlays of the HI trust fund will exceed income beginning in 
1996 and the trust fund is projected to run out of reserves in 
2002, using the intermediate set of assumptions.
     The long-range financial outlook is even more unfavorable. 
Over the 75-year projection period, the HI fund has an 
actuarial balance of -3.52%, using the intermediate set of 
assumptions. This actuarial balance indicates that without 
adequate spending reductions the HI payroll tax rate of 1.45 
percentage points (paid by both employers and employees) would 
have to be more than doubled immediately to keep the fund 
solvent for the entire projection period. To keep the HI fund 
in actuarial balance for 25 years would require an immediate 
44% increase in the payroll tax rate if spending is not slowed.
     In the report, the Board of Trustees urges Congress to 
act:

          The HI trust fund continues to fail the short range 
        test of financial adequacy and is projected to 
        experience increasing annual deficits in future years, 
        beginning in calendar year 1996. * * * Trustees urge 
        the Congress to take additional actions designed to 
        control the HI program costs and to address the 
        projected financial imbalance in both the short-range 
        and the long-range through specific program legislation 
        as part of broad-based health care reform. The Trustees 
        believe that prompt, effective, and decisive action is 
        necessary.

     The two public members of the Board commented further:

          The Medicare program is clearly unsustainable in its 
        present form. We had hoped for several years that 
        comprehensive health care reform would include 
        meaningful Medicare reforms. However, with the results 
        of the last Congress, it is now clear that Medicare 
        reform needs to be addressed urgently as a distinct 
        legislative initiative.

     Not only is the HI trust fund financially out of balance, 
but spending growth within the SMI trust fund is also a concern 
because the SMI rate of growth is unsustainable. SMI cost 
growth directly affects Medicare beneficiary Part B premiums as 
well as general revenues from which the largest share of SMI 
costs are financed.
     In 1995, premiums paid by enrollees will finance only 
about 31.5% of annual costs, according to the 1995 trustees' 
report. Over the next decade, the contribution from general 
revenues to the SMI trust fund will increase from $46 billion 
in 1995 to $151 billion in 2004, for an average annual growth 
rate of over 14%.
     As noted by the Board of Trustees in the 1995 report:

          Although the SMI program is currently actuarially 
        sound, the Trustees note with great concern the past 
        and projected rapid growth in the cost of the program. 
        In spite of evidence of somewhat slower growth rates in 
        the recent past, overall, the past growth rates have 
        been rapid, and the future growth rates are projected 
        to increase above those of the recent past. Growth 
        rates have been so rapid that outlays of the program 
        have increased 53 percent in the aggregate and 40 
        percent per enrollee in the last 5 years. For the same 
        time period, the program grew 19 percent faster than 
        the economy despite recent efforts to control the cost 
        of the program. As a result, the incurred disbursements 
        of the program are projected to increase from 0.93 
        percent of the Gross Domestic Product (GDP) in CY 1994 
        to 4.29 percent of GDP in 2069.

     Overall Medicare spending is also growing much faster than 
nearly all other major federal programs. Between 1995 and 2005, 
the Congressional Budget Office projects Medicare spending will 
grow at an average annual rate of 10.4%. That compares to a 
5.4% growth rate for the Social Security program and 3.6% for 
the rest of the federal budget, excluding net interest and 
Medicaid.
     Medicare insurance coverage remains largely as it was 
originally enacted in 1965: traditional fee-for-service 
indemnity insurance with beneficiary cost-sharing requirements 
to control utilization, and a small health maintenance 
organization program.
     However, private health insurance has evolved 
substantially since the enactment of the Medicare program. More 
and more privately insured Americans are enrolled in managed 
care plans, such as Health Maintenance Organizations (HMOs) and 
Preferred Provider Organizations (PPOs). According to the Group 
Health Association of America (GHAA), some 56 million Americans 
were enrolled in HMOs in 1994, up from 36 million in 1990, and 
65% of people with employer-based health insurance plans were 
enrolled in some form of managed care arrangement, according to 
KPMG Peat Marwick's Health Benefits in 1994 (October 1994).
     Moreover, managed care organizations have recently been 
successful in not only slowing the rate of growth of premiums, 
but in many instances recognizing actual reductions in 
premiums. In 1995, on average, HMOs are expected to reduce 
their per person premiums by 1.2%, according to GHAA. Private 
health plan costs average $1,900 per person this year compared 
with Medicare costs of $4,800 per enrollee.
     Some private employers have also begun to offer their 
employees medical savings accounts. Such accounts allow 
employees and their dependents to control their health care 
dollars, providing strong incentives for cost-conscious 
spending.
     Medicare beneficiaries can enroll in HMOs under the risk 
contracting program and other managed care arrangements, but, 
due to certain features of the program, managed care remains a 
relatively small part of Medicare, with only 8 percent of the 
beneficiaries enrolled in managed care plans as of December 
1994. Medicare beneficiaries are also not currently able to 
enroll in any kind of medical savings account, point-of-service 
or other kinds of insurance arrangements now available to the 
under-65 population.
     To address these pressing concerns and developments in the 
private health care market, the Committee has set as its 
mission to preserve, protect and strengthen the Medicare 
program. The Committee defines its mission as follows:
          to preserve Medicare to bring the program into 
        financial balance and keep it affordable for the 
        current and future generations;
          to protect Medicare to assure beneficiaries that the 
        program as they know it will continue to be available; 
        and
          to strengthen Medicare to provide beneficiaries with 
        private coverage options that empower them to choose 
        the health plan that best fits their needs.
    The Committee used the following criteria to guide its 
efforts to secure Medicare:
          Medicare beneficiary cost sharing proportions would 
        not be increased over the next seven years, with the 
        sole exception of the most affluent beneficiaries whose 
        subsidy by the general taxpayer will be reduced and 
        phased out at higher levels of income.
          Policies to bring Medicare into financial balance and 
        affordable would ensure that Medicare continues to 
        increase spending each year, but Medicare spending 
        growth would be made consistent with the objective to 
        assure solvency in Part A and to make Part B 
        affordable, rather than continuing at the unsustainable 
        and excessive rates experienced in the past.
          The Committee's improvements in Medicare policy would 
        be designed to create opportunities for beneficiaries 
        to choose more modern private coverage options, as well 
        as for health care providers to reduce waste, eliminate 
        abuse and increase efficiency.
    The Committee adhered to the following principles in 
meeting its objectives on ensuring the solvency of the Part A 
Trust Fund and managing the future rate of growth in the cost 
of Medicare:
          For FY 1996-2002, Medicare spending will grow per 
        beneficiary. In fact, under H.R. 2425, Medicare per 
        enrollee spending will increase from $4,800 in 1995 to 
        $6,700 by the year 2002.
          Spending for beneficiaries will grow, in aggregate, 
        at the same rate whether enrolled in MedicarePlus 
        organizations or in the current fee-for-service 
        alternative.
          Medicare spending policy will be managed to extend 
        significantly the solvency of the Part A Trust Fund, 
        and to moderate increases in both the beneficiary 
        contributions to, and the general taxpayers' subsidy 
        of, the Part B Trust Fund.
          A Commission on the Effect of the Baby-Boom 
        Generation on the Medicare Program will be established 
        to make recommendations to the Congress on the reforms 
        necessary to ensure the preservation of the program 
        through the retirement of the baby boom generation, 
        anticipating the demographic pressures this generation 
        will place on the program's financing.
    Under H.R. 2425, Medicare spending will increase annually:

----------------------------------------------------------------------------------------------------------------
                                                   1995    1996    1997    1998    1999    2000    2001    2002 
----------------------------------------------------------------------------------------------------------------
Per enrollee spending...........................   $4816   $5081   $5283   $5525   $5772   $6003   $6354   $6734
----------------------------------------------------------------------------------------------------------------

     Between 1995 and 1996, under this plan, Medicare Part A 
spending will increase by almost 6 percent. CBO projections 
also indicate that Medicare Part B spending will grow by 7.6 
percent. As a result of the reforms included in H.R. 2425, the 
Medicare program will be preserved from bankruptcy even as 
spending continues to grow.

                         C. Legislative History

Committee bill

     H.R. 2425 was introduced on September 29, 1995, by Mr. 
Archer, et al., and referred to the Committee on Ways and 
Means, and in addition, to the Committees on Commerce, the 
Judiciary, and Rules. The bill as introduced includes nine 
subtitles. Subtitle A defines the MedicarePlus program which 
will provide beneficiaries with more choices of health plan 
design. Subtitle B establishes new initiatives for preventing 
fraud and abuse under the Medicare program. Subtitle C provides 
regulatory relief which will reduce the inefficiencies in the 
program created by years of redundant bureaucratic controls. 
Subtitle D provides for reform of the medical malpractice 
system. Subtitle E reforms the graduate medical education 
program and provides for a new trust fund to ensure a 
continuing supply of high quality medical professionals. 
Subtitle F contains provisions to slow the rate of growth of 
the HI program and extend the solvency of the HI trust fund. 
Subtitle G provides reforms to slow the rate of growth in the 
SMI program and to reduce the federal subsidy for affluent 
seniors. Subtitle H provides for reform of the way in which the 
Medicare program pays for home health services and reduces the 
rate of growth of many services that have implications under 
both Part A and Part B of the Medicare program. Subtitle I 
reforms the oversight of the Clinical Laboratories. Subtitle J 
guarantees that the savings that result from slowing the rate 
of growth in the SMI portion of the program will be kept in the 
SMI trust fund.
     The Committee on Ways and Means began consideration of 
H.R. 2425 on October 9, 1995, continued consideration on 
October 10, 1995, completed consideration of H.R. 2425 on 
October 11, 1995, and ordered the bill to be favorably reported 
as amended by a roll call vote of 22 ayes and 14 nays.

Legislative hearings

     The Subcommittee on Health of the Committee on Ways and 
Means held 14 public hearings on reform of the Medicare 
program. The full Ways and Means Committee held an additional 
three hearings. The first subcommittee hearing took place on 
February 6, 1995 and focused on areas of extraordinary growth 
in certain Medicare costs. On February 7, 1995, the 
subcommittee reviewed issues involved in income relating the 
Part B premium. The subcommittee reviewed the existing Medicare 
managed-care programs, including Medicare Select, and issues 
related to expanding managed-care under Medicare. On February 
23, 1995 the subcommittee heard testimony regarding the 
Medicare proposals contained in the President's fiscal year 
1996 budget and the status of the Hospital Insurance Trust 
Fund.
     On March 21, 1995, the subcommittee held a hearing on the 
innovative quality measurement, assurance, and improvement 
systems that can be applied to the Medicare program, and the 
effectiveness of existing quality assurance programs for 
Medicare fee-for-service and HMO beneficiaries. On March 23, 
1995, the subcommittee conducted a hearing on graduate medical 
education which focused on alternative policy directions 
regarding the training of future health professionals, medical 
manpower needs of the evolving health care system, and the 
financing of teaching hospitals under Medicare. The 
subcommittee held an additional hearing on March 30, 1995 to 
review the formal recommendations of the Physician Payment 
Review Commission (PPRC) regarding physician payment under the 
Medicare program.
     On April 3, 1995, the subcommittee held a hearing on the 
Medicare end-stage renal disease (ESRD) program, examining 
trends in costs, beneficiaries, and the number and organization 
of providers under the ESRD program.
    On May 3, 1995 the subcommittee reviewed problems with 
compliance with the existing self-referral provision of the 
Social Security Act, focusing on the obstacles the law in its 
current form may present to physicians, hospitals, and health 
plans which are forming legitimate managed care plans. The 
subcommittee hearing schedule continued on May 16, 1995 with a 
review of the experience employer-based plans have had in 
controlling health care costs and improving the quality of 
care. The hearing focused on the issues and problems 
encountered as new approaches were implemented, the 
effectiveness of different approaches, and the lessons the 
Federal Government can learn from these private-sector 
experiences. On May 24, 1995, the subcommittee investigated the 
reasons for increasing beneficiary enrollment in Medicare risk 
contracting HMOs, and current and alternative HMO payment 
methodologies. On May 25, 1995, the subcommittee explored 
issues involved in enabling employers and associations to offer 
Medicare coverage to former employees and members respectively, 
and the potential role Medical Savings Accounts can play in the 
Medicare program.
    The subcommittee held a continuing hearing on July 19, 20, 
and 25, 1995, reviewing issues involved in saving Medicare. On 
July 27, 1995, the subcommittee held a joint hearing with the 
Subcommittee on Health and the Environment, Committee on 
Commerce. The hearing reviewed standards for health plans 
providing coverage under the Medicare program. The 
subcommittees heard testimony on the full range of standards 
currently applied in the health care system, both public and 
private, with an emphasis on the needs and unique requirements 
of the Medicare program. The testimony included information on 
how best to discharge this responsibility and the appropriate 
roles for private sector entities, the states, and the federal 
government.
    In addition, the full Ways and Means Committee held a 
hearing regarding the Medicare program on February 8, 1995 
which reviewed the Medicare provisions contained in the 
President's 1996 budget. The full Committee held a second 
hearing on May 2, 1995 which focused on the Trustees report on 
the Medicare Hospital Insurance Trust Fund. The full committee 
held an additional hearing on September 22, 1995 on the issues 
involved in saving Medicare, focusing specifically on the 
Medicare proposal which formed the basis for H.R. 2425.

                        II. EXPLANATION OF BILL

                    Subtitle A--MedicarePlus Program

          Part 1. Increasing Choice Under the Medicare Program

Sec. 15001. Increasing choice under medicare

            Present law
    Persons enrolling in Medicare have two basic coverage 
options. They may elect to obtain services through the 
traditional fee-for-service system under which program payments 
are made for each service rendered. Under section 1876 of the 
Social Security Act, they may also elect to enroll with a 
managed care organization which has entered into a payment 
agreement with Medicare. Three types of managed care 
organizations are authorized to contract with Medicare: an 
entity that has a risk contract with Medicare, an entity that 
has a cost contract with Medicare, or a health care prepayment 
plan (HCPP) that has a cost contract to provide Medicare Part B 
services. Risk-contracts are frequently referred to as TEFRA 
risk contracts and cost contracts are frequently referred to as 
TEFRA cost contracts. TEFRA refers to the 1982 legislation, the 
Tax Equity and Fiscal Responsibility Act of 1982, which 
established the rules governing these types of contracts.
    A beneficiary in an area served by a health maintenance 
organization (HMO) or competitive medical plan (CMP) with a 
Medicare risk contract may voluntarily choose to enroll in the 
organization. Medicare makes a single monthly capitation 
payment for each of its enrollees. In return, the entity agrees 
to provide or arrange for the full range of Medicare services 
through an organized system of affiliated physicians, hospitals 
and other providers. The beneficiary must obtain all covered 
services through the HMO or CMP, except in emergencies. The 
beneficiary may be charged the usual cost-sharing charges or 
pay the equivalent in the form of a monthly premium to the 
organization. Beneficiaries are expected to share in the 
projected savings through the provision of benefits in addition 
to that included in Medicare's benefit package.
    Beneficiaries may also enroll in organizations with TEFRA 
cost contracts. These entities must meet essentially the same 
conditions of participation as risk contractors; however they 
may have as few as 1,500 enrollees (rather than 5,000) to 
qualify. Under a cost contract, Medicare pays the actual cost 
the entity incurs in furnishing covered services (less the 
estimated value of beneficiary cost-sharing). Enrollees obtain 
supplemental benefits by paying a monthly premium. The entity 
must offer a basic package (which covers all or a portion of 
Medicare cost-sharing charges); any additional benefits must be 
priced separately. (Conversely, a risk-contractor may offer 
just one package.) Enrollees in TEFRA cost-contract entities 
may obtain services outside the entity's network; however, the 
entity has no obligation to cover the beneficiary's cost-
sharing in this case.
    A third type of managed care arrangement is the HCPP. An 
HCPP arrangement is similar to a TEFRA cost-contract except 
that it provides only Part B services. Further, there are no 
specific statutory conditions to qualify for a HCPP contract. 
Some HCPPs are private market HMOs, while others are union or 
employer plans. HCPPs have no minimum enrollment requirements, 
no requirement that the plan have non-Medicare enrollees, or a 
requirement for an open enrollment period. Unlike TEFRA cost 
contractors (but like risk contractors), HCPPs may offer a 
single supplemental package that includes both Part B cost-
sharing and other benefits; cost-sharing benefits need not be 
priced separately.
    Any Medicare beneficiary residing in the area served by an 
HMO/CMP may enroll, with two exceptions. The first exception 
applies to beneficiaries not enrolled in Part B. The second 
exception applies to persons qualifying for Medicare on the 
basis of end-stage renal disease (ESRD); however, persons 
already enrolled who later develop ESRD may remain enrolled in 
the entity.
    The HMO/CMP must have an annual open enrollment period of 
at least 30 days duration. During this period, it must accept 
beneficiaries in the order in which they apply up to the limits 
of its capacity, unless to do so would lead to violation of the 
50 percent Medicare-Medicaid maximum or to an enrolled 
population unrepresentative of the population in the area 
served by the HMO.
    TEFRA risk contractors are required to hold an additional 
open enrollment period if any other risk-based entity serving 
part of the same geographic area does not renew its Medicare 
contract, has its contract terminated, or has reduced its 
service area to exclude any portion of the service area 
previously served by both contractors. In such cases, the 
Secretary must establish a single coordinated open enrollment 
period for the remaining contractors. These remaining HMOs/CMPs 
must then accept its enrollees during an enrollment period of 
30 days.
    An enrollee may request termination of his or her 
enrollment at any time. An individual may file disenrollment 
requests directly with the HMO or at the local social security 
office. Disenrollment takes effect on the first day of the 
month following the month during which the request is filed. 
The HMO may not disenroll or refuse to re-enroll a beneficiary 
on the basis of health status or need for health services.
    The requirement for an open enrollment period does not 
apply to HCPPs. These entities may deny enrollment or terminate 
enrollment on medical or other grounds, if in doing so they use 
the same criteria for Medicare and non-Medicare enrollees. As a 
result, employer or union plans may restrict enrollment to 
covered retirees.
    The Secretary is authorized to prescribe procedures and 
conditions under which eligible organizations contracting with 
Medicare may inform beneficiaries about the organization. 
Brochures, applications forms, or other promotional or 
informational material may be distributed only after review and 
approval by the Secretary of HHS. HMOs may not disenroll or 
refuse to re-enroll a beneficiary because of health status or 
need for health care services. HMOs must provide enrollees, at 
the time of enrollment and annually thereafter, an explanation 
of rights to benefits, restrictions on services provided 
through nonaffiliated providers, out-of-area coverage, coverage 
of emergency and urgently needed services, and appeal rights. A 
terminating HMO must arrange for supplementary coverage for 
Medicare enrollees for the duration of any preexisting 
condition exclusion under their successor coverage for the 
lesser of 6 months or the duration of the exclusion period.
            Explanation of provision
    The principal change is the creation of the MedicarePlus 
program to permit a wider array of private insurance and other 
organizations to offer health care plans to Medicare 
beneficiaries. MedicarePlus plans could be offered by licensed 
insurers and health maintenance organizations, new entities 
known as provider-sponsored organizations or PSOs, and limited 
enrollment plans such as are offered by Taft-Hartley or 
association sponsors. The array of products can include fee-
for-service, HMO, point-of-service and high-deductible/medical 
savings account plans. As will be noted in later sections, 
MedicarePlus plans must at a minimum cover the traditional 
Parts A and B benefits, and may add supplemental benefits or 
reduce beneficiaries' premium and cost-sharing obligations 
otherwise applicable under the traditional program. As will 
also be discussed in later sections, MedicarePlus plans will be 
actively supervised by the federal government, with the 
assistance of state governments, and will be required to meet 
rigorous quality, patient protection, financial viability and 
other standards enforced through federal contracts.
    The processes under which beneficiaries would be apprised 
of and exercise their plan choices is designed to maximize the 
ease and efficiency with which beneficiaries can enroll into 
the plans of their choice. The reason for the transition period 
is to provide a reasonable timeframe for the Secretary to 
develop standards where needed, to minimize disruption to 
current HMO contractors, and to permit additional health care 
companies to design new MedicarePlus products, contract with 
the Secretary, and begin to market their products to 
beneficiaries.
    Great emphasis in the provisions is placed on the 
Secretary's development of clear, effective and timely 
informational materials to assist beneficiaries in making well-
informed choices. The MedicarePlus Health Fair scheduled for 
October, 1996 will be a major opportunity for the Secretary to 
``field-test'' a national awareness effort in preparation for 
the beginning of annual, open and coordinated enrollment 
periods to be held every subsequent October. These annual open 
enrollment periods will be crucial to promoting competition 
among plans for enrollment of beneficiaries because all plans 
will be competing during a specified period and beneficiaries 
will be able to compare the plans' benefits and costs against 
each other and relative to the traditional program.
    It is the Committee's intent that the MedicarePlus program 
be implemented through an office in the Department of Health 
and Human Services that is separate from the Health Care 
Financing Administration (HCFA), but led by a Director of equal 
pay and rank to that of the HCFA Administrator. This provision 
reflects the Committee's concern that the MedicarePlus program 
be developed and administered in a manner that will foster its 
advancement, rather than placing it in competition for 
resources and attention with an organization principally 
concerned with the ongoing management of the traditional fee-
for-service program.
    Successful implementation of MedicarePlus will require 1) 
innovative executive management, 2) an understanding of private 
insurance markets and skill in creating effective public-
private partnerships, 3) accelerated rulemaking processes, 4) 
strengthened contracting operations, and 5) careful attention 
to customer service, principally Medicare beneficiaries. The 
provisions grant the Secretary the authority to make the 
transfers of funds, personnel, systems and records necessary to 
retool and organize within the Department of Health and Human 
Services to support the MedicarePlus effort.
    The Social Security Act would be amended by establishing a 
MedicarePlus program. Every individual entitled to Medicare 
Part A and enrolled under Part B could elect to receive 
benefits through two options: (1) the existing fee-for-service 
system (``the non-MedicarePlus option'') or (2) through a 
MedicarePlus product (``the MedicarePlus option''). A 
MedicarePlus product could be a product offered by a provider-
sponsored organization; a high deductible policy which would be 
coupled with a Medisave account; or a product operating on a 
fee-for-service, or any other basis. It also could be offered 
by an organization that is a Taft-Hartley or association 
sponsor.
    Special Rules. In general, an individual would be eligible 
to elect a MedicarePlus product offered by a MedicarePlus 
organization only if the organization served the geographic 
area in which in the individual lived. To enroll in a product 
offered by a limited-enrollment MedicarePlus organization, an 
individual would have to be affiliated with it. In the case of 
a product offered by a Taft-Hartley sponsor, the individual 
would have to elect the MedicarePlus product offered by the 
sponsor during the first enrollment period in which the 
individual was eligible to make such an election. An individual 
would not be eligible to elect a product offered by a Taft-
Hartley sponsor if the individual previously had elected a 
MedicarePlus product offered by the organization and had 
subsequently discontinued to elect the product. An individual 
eligible for an annuity under the Federal Employee Health 
Benefit Program would not be eligible for a high-deductible/
medisave product.
    Process For Exercising Choice. The Secretary would be 
required to establish a process for electing non-MedicarePlus 
or MedicarePlus coverage in an expedited manner to permit 
election of MedicarePlus products in an area as soon as they 
became available. Elections would be made (or changed) only 
during specified coverage election periods. An individual who 
wished to elect a MedicarePlus product would do so by filing an 
appropriate election form with the organization. Disenrollment 
would be accomplished the same way. An individual failing to 
make an election during the initial election period would be 
deemed to have chosen the non-MedicarePlus option. An election 
would continue until the individual changed elections or the 
MedicarePlus product was discontinued. The Secretary could 
enter into an agreement with the Commissioner of Social 
Security under which the Commissioner would be responsible for 
the administration of enrollment and disenrollment in 
MedicarePlus products.
    Provision of Beneficiary Information to Promote Informed 
Choice. The Secretary would provide for activities to 
disseminate broadly information to current and prospective 
Medicare beneficiaries on the coverage options available in 
order to promote an active, informed selection among such 
options. The information would have to be provided so as to 
permit individuals to elect the MedicarePlus option during an 
initial election period. The Secretary would be required to 
contract with appropriate public and private entities to carry 
out such activities.
    The Secretary would be required to provide for at least the 
following in all areas in which MedicarePlus products were 
offered: (1) publish and disseminate an information booklet 
during coverage election periods, including information in 
standardized format and in plain English on benefits and 
premiums, quality (including consumer satisfaction); and 
beneficiary rights and responsibilities; (2) maintain a toll-
free number for inquiries regarding MedicarePlus options; and 
(3) include information in the Medicare Handbook on the 
MedicarePlus option. The information booklet would have to be 
updated regularly.
    Coverage Election Periods. For individuals newly eligible 
for Medicare after the transition period, elections would occur 
at the first time the individual both was entitled to benefits 
under Part A and enrolled under Part B. The transition period 
would be the period beginning when a MedicarePlus product first 
became available in an individual's area and ending with the 
close of the annual, coordinated election period occurring in 
October 1997.
    During the transition period, an individual who elected to 
enroll in the non-MedicarePlus option could change election to 
a MedicarePlus option at any time. An individual in a 
MedicarePlus product could change election to another 
MedicarePlus product or the non-MedicarePlus option.
    In October, 1996, the Secretary would be required to 
conduct a MedicarePlus Health Fair which would provide for a 
nationally coordinated educational and publicity program to 
inform MedicarePlus eligible persons about MedicarePlus 
products and the election process, including the upcoming 
annual, coordinated election periods that would begin in 1997.
    After the transition period, there would be an annual, 
coordinated election period during October of each year 
(beginning 1997) in which individuals could change elections. 
An individual who elected the MedicarePlus product option 
(other than the high-deductible/medisave option) for the first 
time could discontinue such election through the filing of an 
appropriate notice for up to 90 days from the enrollment's 
effective date. An individual who discontinued an election 
would be deemed to have elected the Non-MedicarePlus option.
    A person who had elected a high-deductible/medisave product 
could not change to a MedicarePlus option that was not a high-
deductible/medisave product unless the individual made such 
change during an annual, coordinated election period, or the 
individual had had such election in effect for 12 months. The 
high-deductible/medisave option would become first available, 
effective January 1, 1997. Elections for 1997 would occur 
during the October 1996 election period.
    Special election periods would be provided in which an 
individual could discontinue an election of a MedicarePlus 
product and make a new election if: (1) the organization's or 
product's certification was terminated or the organization 
terminated or otherwise discontinued providing the product; (2) 
the person who elected a MedicarePlus product was no longer 
eligible because of a change in residence or certain other 
changes in circumstances; (3) the individual demonstrated that 
the organization offering the product violated its contract 
with Medicare or misrepresented the product in its marketing; 
or (4) the individual met other conditions specified by the 
Secretary.
    Effectiveness of Elections. An election made during the 
initial election period would become effective when the 
individual became entitled to benefits, except as the Secretary 
might provide in order to prevent retroactive coverage through 
a MedicarePlus product. In general, after the transition, 
elections made during an annual election period would take 
effect as of the first day of the following year. Elections 
during other periods would take effect in the manner specified 
by the Secretary to protect continuity of coverage.
    Administration. These provisions would be administered 
through an office in the DHHS that was separate from the HCFA, 
and whose primary function would be administration of the 
MedicarePlus and Medicare managed care programs. The director 
of this Division would be of equal pay and rank to that of the 
HCFA Administrator.
            Reason for change
    The Medicare program, except for the addition of HMOs, 
modest changes in benefits, and episodic reforms in provider 
payment methods, has remained essentially unaltered in its 
fundamental design and operation since the program's inception 
in 1965. This contrasts starkly with the health benefit design, 
delivery, and cost containment innovations that have occurred 
in the private sector, especially in employer plans, including 
the Federal Employee's Health Benefit Plan. The creation of 
MedicarePlus permits the introduction of comparable innovations 
and opportunities for improvement into the Medicare program, 
while keeping the existing Medicare program available for those 
beneficiaries who prefer to remain in it. However, over time as 
MedicarePlus plans enter local communities, many beneficiaries 
should find that they can improve their overall benefits and 
reduce their out-of-pocket costs by enrolling in these 
privately designed and administered products.
            Effective date
    These provisions are effective upon enactment. The 
transition period effectively ends with the first annual open 
enrollment period of October 1997. The MedicarePlus Health Fair 
is to be conducted in October 1996. The high-deductible/
medisave option would first become effective on January 1, 
1997, although marketing and applications for enrollment will 
occur in 1996.

Sec. 15002. Provisions relating to MedicarePlus requirements for 
        MedicarePlus organizations; high-deductible/Medisave products 
        (Part C of Medicare)

            Present law
    Under section 1876 of the Social Security Act, Medicare 
specifies requirements to be met by an organization seeking to 
become a managed care contractor with Medicare. In general, 
these include the following: (1) the entity must be organized 
under the laws of the State and be a Federally qualified HMO or 
meet specified requirements (provide physician, inpatient, 
laboratory, and other services, and provide out-of-area 
coverage); (2) the organization is paid a predetermined amount 
without regard to the frequency, extent, or kind of services 
actually delivered to a member; (3) the entity provides 
physicians' services primarily through physicians who are 
either employees or partners of the organization or through 
contracts with individual physicians or physician groups; (4) 
the entity assumes full financial risk on a prospective basis 
for the provision of covered services, except that it may 
obtain stop loss coverage and other insurance for catastrophic 
and other specified costs; and (5) the entity has made adequate 
protection against the risk of insolvency.
    There is no provision under current law for high-
deductible/medisave products.
            Explanation of provision
    The Social Security Act would be amended to create a new 
Part C: Provisions Relating to MedicarePlus Organizations; 
High-Deductible/Medisave Products. Similar to current law, a 
MedicarePlus organization would be defined as a public or 
private entity certified (as described below) as meeting the 
requirements described in the following provisions.
    Overview. The provisions are designed to emphasize the 
central importance of new types of MedicarePlus organizations 
assuming full financial liability for the costs of providing 
MedicarePlus benefits to enrollees. The provisions further 
emphasize the related and equal importance of each organization 
meeting federal solvency standards, and where applicable, 
traditional state insurance licensing standards which address 
fundamental rules regarding solvency. Taft-Hartley plans are 
treated differently because they are already separately 
regulated under federal law and must meet stringent standards 
of fiduciary conduct.
    In general, the provisions specified in greater detail 
below provide that the Medicare program will make a premium 
payment to MedicarePlus organizations for each Medicare 
beneficiary that is enrolled in a plan. It is the Committee's 
intent that the Medicare program contribute the principal 
financing to enroll beneficiaries in approved, privately 
administered plans. Although these premium amounts will vary 
for actuarial reasons as specified in later sections, they will 
not vary by the type of plan in which a beneficiary chooses to 
enroll.
    This section of the bill contains provisions for a major 
new product that can be made available to Medicare 
beneficiaries known as the high deductible/medisave product (to 
be referred to simply as Medisave). Medisave pairs a high 
deductible insurance policy with a medical savings account. It 
is the Committee's intent to make available to beneficiaries a 
product designed to grant them greater control over how they 
spend at least a portion of the annual actuarial value of their 
Medicare benefit, while also encouraging the prudent use of 
more routine types of health services. The annual deductible 
may not initially exceed $10,000, but it is the Committee's 
expectation that most Medisave products will come onto the 
market with deductibles lower than that amount. It is the 
higher annual deductible that evidence suggests will encourage 
careful use of routine services, while amounts deposited in the 
medical savings account portion can either accrue as savings 
against the high deductible, or be used by beneficiaries for 
other health expenses not currently covered by Medicare, such 
as prescription drugs or long-term care insurance premiums.
    Organized and Licensed under State Law. In general, a 
MedicarePlus organization would have to be organized and 
licensed under State law to offer health insurance or health 
benefits coverage in each State in which it offered a 
MedicarePlus product. This would not apply to Taft-Hartley 
sponsors or provider-sponsored organizations.
    Prepaid Payment. A MedicarePlus organization would have to 
be compensated (except for deductibles, coinsurance, and 
copayments) by a fixed payment paid on a periodic basis and 
without regard to the frequency, extent, or kind of health care 
services actually provided to an enrollee.
     Assumption of Full Financial Risk. The organization would 
have to assume full financial risk on a prospective basis for 
the provision of health services (other than hospice care) 
except the organization could obtain insurance or make other 
arrangements for: stop-loss coverage for aggregate costs in 
excess of $5,000; services needing to be provided other than 
through the organization; and for no more than 90 percent of 
the amount by which its costs for any of its fiscal years 
exceeded 115 percent of its income for such year. It could also 
make arrangements with providers or health institutions to 
assume all or part of the risk on a prospective basis for the 
provision of basic services.
     Provision Against Risk of Insolvency. Each MedicarePlus 
organization would have to meet standards relating to financial 
solvency and capital adequacy, as specified below. Taft-Hartley 
plans would be deemed to meet this requirement.
    High Deductible/Medisave Products. The bill authorizes a 
Medisave option within MedicarePlus. A Medisave plan combines 
high deductible insurance with a medical savings account. High 
deductible insurance would provide reimbursement for Medicare 
benefits and others the plan may elect to provide only after 
the enrollee incurred annual expenses equal to a deductible of 
not greater than $10,000. These thresholds would be increased 
yearly (and rounded to the nearest $50) by the percentage 
increase in the national average per capita growth rate 
(described below). For purposes of the deductible, the 
insurance would have to at a minimum count all expenses that 
would have been payable by Medicare and the enrollee under 
Parts A and B. After the deductible was met, the insurance 
would have to reimburse all expenses that would have been paid 
without regard to deductibles or coinsurance under Parts A and 
B.
     Organizations Treated as MedicarePlus Organizations During 
Transition. Certain organizations would be considered qualified 
as MedicarePlus organizations for contract years beginning 
before January 1, 1998. These include:
          HMOs organized under State law that are qualified 
        under the Public Health Service Act; an organization 
        that is recognized under State law as an HMO; or a 
        similar organization regulated for solvency in the same 
        manner and extent as an HMO.
          Organizations that are organized under State laws and 
        are licensed by a State agency as a health insurer or 
        as a service benefit plan, but only for individuals 
        residing in an area in which the organization is 
        licensed to offer health insurance coverage; and
          Organizations with Medicare risk contracts as of the 
        date of enactment.
            Reason for change
    It is the Committee's view that the introduction of 
significant innovations from the private sector, coupled with 
the full transfer of risk for each enrollee to participating 
private sector plans, will effectively temper the growth in 
spending in the Medicare program while providing opportunities 
for beneficiaries to improve upon the traditional Medicare 
benefit package.
            Effective date
    These provisions are effective upon enactment, except as 
noted earlier, Medisave products are effective January 1, 1997.

Requirements relating to benefits, provision of services, enrollment, 
        and premiums

            Present law
    Section 1876 provides for requirements relating to 
benefits, payment to the plans by Medicare, and payments to the 
plans by beneficiaries. In addition, it specifies standards for 
patient protection, quality assurance, and general contractor 
requirements.
    A Medicare beneficiary enrolled in an HMO/CMP is entitled 
to receive all services and supplies covered under Medicare 
Parts A and B (or Part B only, if only enrolled in Part B). 
These services must be provided directly by the organization or 
under arrangements with the organization. Enrollees in risk-
based organizations are required to receive all services from 
the HMO/CMP except in emergencies.
    In general, HMOs/CMPs offer benefits in addition to those 
provided under Medicare's benefit package. In certain cases, 
the beneficiary has the option of selecting the additional 
benefits, while in other cases some or all of the supplementary 
benefits are mandatory.
    Some entities may require members to accept additional 
benefits (and pay extra for them in some cases). These required 
additional services may be approved by the Secretary if it is 
determined that the provision of such additional services will 
not discourage enrollment in the organization by other Medicare 
beneficiaries.
    The amount an HMO/CMP may charge for additional benefits is 
based on a comparison of the entity's adjusted community rate 
(ACR, essentially the estimated market price) for the Medicare 
package and the average of the Medicare per capita payment 
rate. A risk-based organization is required to offer 
``additional benefits'' at no additional charge if the 
organization achieves a savings from Medicare. This ``savings'' 
occurs if the ACR for the Medicare package is less than the 
average of the per capita Medicare payment rates. The 
difference between the two is the amount available to pay 
additional benefits to enrollees. These may include types of 
services not covered, such as outpatient prescription drugs, or 
waivers of coverage limits, such as Medicare's lifetime limit 
on inpatient hospital care. The organization might also waive 
some or all of the Medicare's cost-sharing requirements.
    The entity may elect to have a portion of its ``savings'' 
placed in a benefit stabilization fund. The purpose of this 
fund is to permit the entity to continue to offer the same set 
of benefits in future years even if the revenues available to 
finance those benefits diminish. Any amounts not provided as 
additional benefits or placed in a stabilization fund would be 
offset by a reduction in Medicare's payment rate.
    If the difference between the average Medicare payment rate 
and the adjusted ACR is insufficient to cover the cost of 
additional benefits, the HMO/CMP may charge a supplemental 
premium or impose additional cost-sharing charges. If, on the 
other hand, the HMO does not offer additional benefits equal in 
value to the difference between the ACR and the average 
Medicare payment, the Medicare payments are reduced until the 
average payment is equal to the sum of the ACR and the value of 
the additional benefits.
    For the basic Medicare covered services, premiums and the 
projected average amount of any other cost-sharing may not 
exceed what would have been paid by the average enrollee under 
Medicare rules if she or he had not joined the HMO. For 
supplementary services, premiums and projected average cost-
sharing may not exceed what the HMO would have charged for the 
same set of services in the private market.
    HMOs/CMPs contracting with Medicare can pay second to 
workers' compensation, automobile liability or other specified 
sources of insurance.
    Current law also provides for Medicare managed care 
contracts with Health care Prepayment Plans (HCPPs). A HCPP 
arrangement is similar to a TEFRA cost-contract except that it 
provides only Part B services. There are no specific statutory 
conditions to qualify for a HCPP contract.
    Collectively bargained health plans and those sponsored by 
private multiemployer health plans (most of which are Taft-
Hartley plans) are regulated under the Employee Retirement 
Income Security Act (ERISA). Under ERISA, the States are 
authorized to regulate multiple employer welfare arrangements 
(MEWAs) to the extent that such regulation does not conflict 
with ERISA. Association plans may or may not be regulated as 
MEWAs and are generally regulated by the States.
    Penalties apply for violations of limits on the use of 
``physician incentive plans,'' i.e., compensation arrangements 
between HMOs and physicians that might induce physicians to 
withhold services. An HMO may not make a specific payment to a 
physician as an inducement to reduce or limit services to a 
specific enrollee. In addition, if physicians or physician 
groups are placed at substantial financial risk for services 
other than their own, the HMO must provide adequate stop-loss 
protection to limit the physicians' potential liability and 
must periodically survey enrollee satisfaction.
    There are no provisions in current law for provider 
protections, or for the Department of Labor to play a role in 
establishing and enforcing Medicare contractor standards for 
employer-sponsored health plans. In addition, there is no 
provision in current law for high-deductible/medisave products.
            Explanation of provision
    Overview. With a few key exceptions to be noted, most of 
the provisions in this section derive from current law as 
applied to risk contractors. The following discussion 
highlights key new provisions.
    As noted earlier, MedicarePlus organizations must provide 
at a minimum all benefits currently available under Parts A and 
B. In recognition of the new types of products that can be 
offered, the Committee thought it important to introduce basic 
payment protections tailored to reflect different product 
designs. In the payment provisions, a beneficiary's liability 
is generally limited to what the liability would have been on 
average had the beneficiary chosen to remain in the traditional 
program. The exception to these rules applies to fee-for-
service plans, where balance billing is permitted.
    It is the Committee's intent that Christian Science nursing 
facility services that are currently covered under Part A of 
Medicare must also be made available by MedicarePlus plans to 
enrollees who choose to use such services.
    Special rules apply to limited enrollment plans in order to 
define what is intended by the term limited enrollment and to 
make clear that such plans can only enroll beneficiaries who 
have a connection to the sponsoring organization such as union 
or association membership.
    A broad non-discrimination rule has been adopted to prevent 
plans from discriminating against beneficiaries by reason of 
health status and other factors. This is coupled with 
guaranteed issue requirements and other rules in other sections 
that work in tandem to reflect the Committee's intent that 
beneficiaries have a true and open choice of plans and that 
MedicarePlus organizations not evade their obligation to fully 
assume risk for and provide all medically necessary health care 
services, even for costly cases.
    Insurance carriers offering high deductible coverage under 
Medisave plans must structure their premiums using the same 
demographic and other factors by which the Secretary adjusts 
the actuarial value of the MedicarePlus contribution paid on 
behalf of individual enrollees. This is necessary to maintain 
appropriate financial relationships between the MedicarePlus 
program's premium contribution and the residual amount paid 
into the beneficiary's medical savings account.
    MedicarePlus plans will be permitted to offer, as one form 
of additional benefits, rebates to beneficiaries not to exceed 
the level of the Medicare Part B premium. It is the Committee's 
view that although enrollment in Part B of Medicare is 
voluntary, the vast majority of seniors do enroll and face a 
premium expense for doing so. The Committee viewed this as an 
out-of-pocket expense to beneficiaries that plans should be 
able to reduce in a manner similar to the way in which they may 
reduce other out-of-pocket expenses associated with the 
Medicare program, such as deductibles and copayments. However, 
in order to safeguard against inappropriate uses of rebate 
authority, plans may not offer rebates in excess of the level 
of the basic Part B premium, nor may they use such rebates as 
inappropriate inducements to enrollment.
    The provisions establish basic procedures governing the 
relationship between MedicarePlus plans and providers 
participating in those plans. It is the Committee's belief that 
MedicarePlus plans must be able to freely organize provider 
networks and enter into various arrangements with different 
providers as needed to effectively and efficiently support 
their product. This also means that plans must be able to 
modify those arrangements under the same premise. However, it 
is the Committee's intent that MedicarePlus plans follow basic 
procedures so that providers are given information regarding 
the plans' participation requirements, and so that providers 
are apprised of and can respond to adverse decisions regarding 
their arrangements with MedicarePlus organizations.
    Benefits Covered. Each MedicarePlus product would be 
required to provide benefits for at least the items and 
services for which benefits are available under parts A and B 
consistent with the standards for coverage of such items and 
services. A MedicarePlus product would meet the general benefit 
requirements if in the case of benefits furnished through fee-
for-service providers, the product provided for at least the 
dollar amount of payment for such items and services as would 
otherwise have been provided under Medicare Parts A and B. In 
the case of benefits furnished through providers with a 
contract with the organization, the individual's liability for 
payment for services could not exceed (after taking into 
account any deductible which does not exceed any deductible 
under Parts A and B) the lesser of:
          (a) the amount of liability that the individual would 
        have had (based on the provider being a participating 
        provider) if the individual had elected the non-
        MedicarePlus option, or
          (b) the applicable coinsurance or copayment amounts 
        (that would have applied under the non-MedicarePlus 
        option) provided under the contract.
As under current law, the MedicarePlus organization could pay 
second in specified cases.
    Guaranteed Issue and Renewal. Generally, a MedicarePlus 
organization would be required to provide that at any time 
during which elections were accepted, it would have to accept 
without restrictions individuals eligible to make such an 
election. If the Secretary determined that the organization had 
a capacity limit and the number of individuals who elected the 
product exceeded that limit, the organization could limit the 
election of individuals, but only if priority was given first 
to those individuals who had already elected the product, and 
then to others in a manner which did not discriminate. A 
MedicarePlus organization could not terminate or refuse to 
accept an individual's election except in the event of 
nonpayment of premiums, disruptive behavior, or the product was 
terminated with respect to all eligible Medicare individuals. 
(Those terminated would be deemed to have elected the non-
MedicarePlus option).
    Special Rules for Limited Enrollment MedicarePlus 
Organizations. MedicarePlus sponsors would have to limit 
enrollment for MedicarePlus products to specific individuals. A 
Taft-Hartley sponsor would have to limit eligibility to 
individuals who were entitled to obtain benefits under the 
terms of an applicable collective bargaining agreement.
    A qualified association would be defined as an individual-
membership association, religious fraternal organization, or 
other organization (a trade, industry, or professional 
association, a chamber of commerce, or a public entity 
association) that the Secretary found (1) was formed for 
purposes other than the sale of health insurance and did not 
restrict membership based on the health status, claims 
experience, receipt of health care, medical history, or lack of 
insurability, of an individual; (2) did not exist solely or 
principally for the purposes of selling insurance; and had at 
least 1,000 individual members, or 200 company members. 
Association sponsors would have to limit eligibility to 
individuals who were members of the association (or their 
spouses). Associations could not terminate coverage of an 
individual because the individual was no longer an association 
member except pursuant to a change of election during an open 
election period occurring on or after the date of termination 
of membership.
    These eligibility rules could not have the effect of 
denying eligibility to individuals on the basis of health 
status, claims experience, receipt of health care, medical 
history, or lack of evidence of insurability.
    Submission and Charging of Premiums. Similar to current 
law, each MedicarePlus organization would be required annually 
to file the amount of the monthly premium for coverage under 
each of its products it would be offering in each payment area, 
and the enrollment capacity in relation to the product in each 
such area. The premium charged for a product offered in a 
payment area would equal \1/12\ of the amount (if any) by which 
the premium exceeded the MedicarePlus capitation rate (see 
below). Premiums could not vary among individuals who resided 
in the same payment area. An exception would apply to high-
deductible/Medisave products which would be experience-rated 
based on specified risk factors. (These factors are the same as 
those used for setting the MedicarePlus contribution level.) 
Each MedicarePlus organization would have to permit monthly 
payment of premiums. An organization could terminate election 
of individuals for a MedicarePlus product for failure to make 
premium payments but only under specified conditions. A 
MedicarePlus organization's premium rate and the actuarial 
value of its deductibles and coinsurance, attributable to the 
basic Parts A and B benefits and excluding permissable balance 
billing, could not exceed the actuarial value of the 
deductibles and coinsurance otherwise applicable under the 
Medicare program.
    Requirement for Additional Benefits, Part B Premium 
Discount Rebates, or Both. If the actuarial value of the 
benefits under the MedicarePlus product (as determined based 
upon the adjusted community rate (ACR)--see below) for 
individuals was less than the average of the capitation 
payments made to the organization for the product at the 
beginning of an annual contract period, the organization could 
provide additional benefits, a monetary rebate (paid on a 
monthly basis) of the Part B monthly premium, or a combination 
of both. The value of these benefits, rebates or combination 
thereof would have to be at least as much as the amount by 
which the capitation payment exceeded the ACR, and would have 
to be applied uniformly for all enrollees in a product area. 
The rebate could not exceed the amount of the Part B premium 
(not taking into account penalties for late enrollment or the 
amount incurred as a result of affluence testing). The 
organization could provide that a part of the excess be 
withheld for the organization's stabilization fund. A 
MedicarePlus organization could provide additional benefits 
(over and above those required to be added as a result of the 
excess payment), and could impose a premium for such additional 
benefits. Cash or other types of rebates to induce enrollment 
or otherwise would be prohibited.
    A MedicarePlus organization could provide that a part of 
the value of the excess actuarial amount be withheld and 
reserved in the HI and SMI trust funds (in such proportions as 
the Secretary determined to be appropriate) by the Secretary 
for subsequent annual contract periods, to the extent required 
to stabilize and prevent undue fluctuations in the additional 
benefits and rebates offered in those subsequent periods. 
Leftover amounts not provided as additional benefits would 
revert to the trust funds.
    Adjusted Community Rate (ACR). Similar to current law, the 
ACR would mean, at the election of the MedicarePlus 
organization, either the rate of payment services which the 
Secretary annually determined would apply to the individuals 
electing a MedicarePlus product if the payment were determined 
under a community rating system, or the portion of the weighted 
aggregate premium which the Secretary annually estimated would 
apply to the individual but adjusted for differences between 
the utilization of individuals under Medicare and the 
utilization of other enrollees (or through another specified 
manner). For PSOs, the ACR could be computed using data in the 
general commercial marketplace or (during the transition 
period) based on the costs incurred by the organization in 
providing such a product.
    Protections for Providers. Each MedicarePlus organization 
would be required to establish reasonable procedures relating 
to the participation of physicians by providing: (a) notice of 
rules of participation, (b) written notice of participation 
decisions that are adverse to providers, and (c) a process 
within the organization for appealing adverse decisions, 
including the presentation of information and views of the 
provider regarding such decision. The organization would be 
required to consult with physicians who have entered into 
participation agreements with the organization regarding the 
organization's medical policy, quality and credentialing 
criteria, and medical management procedures.
    Similar to current law, each MedicarePlus organization 
would be prohibited from operating any physician incentive plan 
(i.e., any compensation arrangement between a MedicarePlus 
organization and a physician or physician group that directly 
or indirectly has the effect of reducing or limiting services 
provided to enrollees) unless certain requirements were met: 
(1) no specific payment could be made directly or indirectly 
under the plan to a physician or physician group as an 
inducement to reduce or limit medically necessary services 
provided with respect to a specific enrollee; (2) if a plan 
placed a physician or physician group at substantial financial 
risk for services not provided by the physician or group, the 
organization provided adequate and appropriate stop-loss 
protection and conducted periodic surveys of both individuals 
enrolled and previously enrolled to determine their degree of 
access to services and satisfaction with the quality of those 
services; and (3) the organization provided to the Secretary 
descriptive information sufficient to determine the plan's 
compliance.
    Provision of Information. Each MedicarePlus organization 
would be required to provide the Secretary with the information 
needed to prepare the information booklet described above.
    Coordinated Acute and Long-Term Care Benefits under a 
MedicarePlus Product. States would be able to coordinate 
benefits under their MediGrant programs with those provided 
under a MedicarePlus product to assure continuity of a full 
range of acute and long-term care services to eligible poor 
elderly or disabled individuals.
            Reason for change
    It is the Committee's view that beneficiaries are 
interested in health insurance coverage options under Medicare 
which improve their coverage, and would welcome the opportunity 
to take advantage of additional choices made available under a 
carefully designed and administered MedicarePlus program. In 
addition, the Committee felt it was important to improve the 
conditions under which health care providers and MedicarePlus 
organizations relate to each other under MedicarePlus contracts 
in order to encourage providers to participate in 
organizations.
            Effective date
    These provisions are effective upon enactment.

Patient protection standards

            Present law
    Medicare HMOs/CMPs must provide enrollees, at the time of 
enrollment and annually thereafter, an explanation of rights to 
benefits, restrictions on services provided through 
nonaffiliated providers, out-of-area coverage, coverage of 
emergency and urgently needed services, and appeal rights.
    Medicare HMOs/CMPs must make all Medicare covered services 
and all other services contracted for available and accessible 
within its service area, with reasonable promptness and in a 
manner that assures continuity of care. Urgent care must be 
available and accessible 24 hours a day and 7 days a week. HMOs 
must also pay for services provided by nonaffiliated providers 
when services are medically necessary and immediately required 
because of an unforeseen illness, injury, or condition and it 
is not reasonable, given the circumstances, to obtain the 
services through the HMO.
    Medicare HMOs/CMPs must enroll individuals and provide 
covered services to enrollees who live within the geographic 
area served by the organization. Regulations provide that 
geographic area means the area found by HCFA to be that within 
which the HMO furnishes, or arranges for furnishing, the full 
range of services it offers to its Medicare enrollees.
    HMOs/CMPs are required to have arrangements for an ongoing 
quality assurance program that stresses health outcomes and 
provides review by physicians and other health care 
professionals of the process followed in the provision of 
health services. External review is conducted by a peer review 
organization (PRO), one of the groups that has contracted with 
the Secretary for review of the quality and appropriateness of 
hospital services. PRO reviews of HMOs/CMPs covers both 
inpatient and outpatient care. The Secretary also has the right 
to inspect or otherwise evaluate the quality, appropriateness, 
and timeliness of services provided and the facilities of the 
organization when there is reasonable evidence of some need for 
inspection.
    In up to 25 States, the Secretary is authorized to 
designate another external agency, known as a quality review 
organization or QRO to perform reviews. QROs must meet many of 
the same standards as PROs, but have not contracted with the 
Department of HHS for the review of services other than those 
provided by an HMO/CMP.
    HMOs/CMPs must have meaningful grievance procedures for the 
resolution of individual enrollee complaints, about such 
problems as failure to receive covered services or unpaid 
bills. In addition, an enrollee who believes that the HMO has 
improperly denied a service or imposed an excessive charge has 
the right to a hearing before the Secretary if the amount 
involved is greater than $100. If the amount is greater than 
$1,000, either the enrollee or the HMO may seek judicial 
review.
            Explanation of provision
    Overview. Many of the provisions in this section of the 
bill derive from current law. However, reflecting the new types 
of products that can be offered, the Committee thought it was 
especially important to emphasize clear, accurate and prominent 
disclosure of benefits and of any financial liabilities for 
beneficiaries associated with specific products. In addition, 
the provisions establish organizations' minimum 
responsibilities under point-of-service features, where 
beneficiaries are authorized to go out of plan for services, 
but may face higher cost sharing as a result. The additional 
provisions limiting provider payment levels and beneficiary 
liability for emergency services provided out of plan are a 
protection for organizations and for beneficiary enrollees, 
facing the need for services on an emergency basis. This is, 
however, a change from current law which imposes payment limits 
even for non-emergency services provided out of plan. It is the 
Committee's view that plans should assume responsibility for 
securing and setting payment levels for authorized services 
provided out of plan, including for example, renal dialysis 
services. Plans are not responsible for unauthorized, non-
emergency services that a beneficiary may obtain out of plan.
    The provisions on external quality review organizations 
expand current law because it was the Committee's view that all 
MedicarePlus plans should be able to meet the quality standards 
of approved, independent external review organizations and that 
more organizations should be eligible to function in that role 
without limitations on the numbers of organizations competing 
to perform these functions.
    With respect to marketing and enrollment, it is the 
Committee's intent to allow independent agents acting on behalf 
of MedicarePlus organizations to explain the plan's benefits 
and limitations and to accept enrollment forms from individuals 
electing the product. However, it is counter to the Committee's 
view that such agents be permitted to complete enrollment forms 
for individuals. At all permissable election periods, 
beneficiaries may enroll directly with the MedicarePlus 
organization of their choice.
    Disclosure to Enrollees. Each MedicarePlus organization 
would be required to disclose in clear, accurate, and 
standardized forms certain information including: (1) benefits, 
including coverage exclusions and, for a high-deductible/
medisave product, a comparison of its benefits with those under 
other MedicarePlus products; (2) rules relating to prior 
authorization or other review requirements that could result in 
nonpayment; (3) liability for cost-sharing for out-of-network 
services; (4) the number, mix, and distribution of providers; 
(5) financial obligations of the enrollee; (7) enrollee 
satisfaction data; (8) enrollee rights and responsibilities; 
and (8) a statement that use of the 911 number is appropriate 
in emergency situations.
    Access to Services. A MedicarePlus organization offering a 
MedicarePlus product could restrict the providers from whom 
benefits were to be provided so long as: (1) the organization 
made the benefits available to each individual electing the 
product within the service area with reasonable promptness and 
in a manner which assured continuity in the provision of 
benefits, (2) when medically necessary, the organization made 
benefits available and accessible 24 hours a day and 7 days a 
week, and (3) the product provided for reimbursement to other 
organizations if the services were medically necessary and 
immediately required because of an unforeseen illness, injury, 
or condition and it was not reasonable given the circumstances 
to obtain the services through the organization. Emergency 
services are given a specific definition in the bill.
    If the MedicarePlus product provided out-of-network 
coverage, the payment level for services furnished outside the 
network would have to be at least 70 percent (or, if the cost-
sharing was 50 percent, at least 35 percent) of the lesser of 
the payment basis (determined without regard to deductibles and 
cost-sharing) that would have applied under Medicare Parts A 
and B, or the amount charged by the entity furnishing such 
items and services.
    In the case of emergency services provided out of plan to 
an enrollee, participating providers would be required to 
accept as payment in full from the MedicarePlus organization 
the amount that would have been payable under Part B and from 
the individual, if the individual had not enrolled with the 
organization. In the case of nonparticipating physicians, the 
limitations on actual charges for such services otherwise 
applicable under Part B would apply.
    Confidentiality and Accuracy of Enrollee Records. Each 
MedicarePlus organization would have to establish procedures to 
safeguard the privacy of individually identifiable enrollee 
information, and maintain accurate and timely medical records.
    Quality Assurance. Each MedicarePlus organization would be 
required to arrange (in accordance with regulations of the 
Secretary) for an ongoing quality assurance program meeting 
certain requirements such as: (1) stressing health outcomes; 
(2) providing the establishment of written protocols for 
utilization review, (3) providing review by physicians and 
other health care professionals of the process followed in the 
provision of services; (4) monitoring and evaluating high 
volume and high risk services and the care of acute and chronic 
conditions; (5) evaluating the continuity and coordination of 
care; (6) establishing mechanisms to detect underutilization 
and overutilization; (6) making information available on 
quality and outcomes to facilitate beneficiary comparison and 
choice; (7) evaluating on an ongoing basis the plan's 
effectiveness, and (8) providing for external accreditation and 
review by a Medicare peer review organization or other 
qualified independent review organization that the quality of 
services meets professionally recognized standards of care.
    Coverage Determinations. Each MedicarePlus organization 
would have to make determinations regarding authorization 
requests for nonemergency care on a timely basis. Medical 
necessity decisions could only be made by a physician. Appeals 
of a determination would have to be decided within 30 days of 
receiving medical information and no later than 60 days after 
the date of the decision. Appeals relating to a life-
threatening or emergency situation would have to be decided on 
an expedited basis.
    Grievance and Appeals. Each MedicarePlus organization would 
have to provide for meaningful procedures for hearing and 
resolving grievances between the organization (and entities and 
individuals through which it provides services) and enrollees. 
An enrollee dissatisfied by reason of the enrollee's failure to 
receive health services would be entitled, if the amount in 
controversy was $100 or more, to a hearing before the 
Secretary. If the amount in controversy was $1,000 or more, the 
individual or organization, upon notifying the other party, 
would be entitled to judicial review.
    Information on Advance Directives. Each MedicarePlus 
organization would be required to maintain written policies and 
procedures respecting advance directives (as specified 
elsewhere in the Medicare statute).
    Approval of Marketing Materials. Each MedicarePlus 
organization could not distribute marketing material unless (1) 
at least 45 days before distribution, the organization 
submitted the material to the Secretary for review, and the 
Secretary did not disapprove the material. Standards 
established below would include guidelines for the review of 
such materials. Under these guidelines, the Secretary would be 
required to disapprove marketing material if it was materially 
inaccurate or misleading or otherwise made a material 
misrepresentation. To facilitate ``one stop shopping,'' 
materials submitted to the Secretary by an organization for a 
MedicarePlus product in an area that were not disapproved would 
be considered as approved for all other areas covered by the 
product and organization. Each organization would be required 
to conform to fair marketing standards included in the 
MedicarePlus standards. Such standards would include a 
prohibition against a plan (or agent of such a plan) completing 
any portion of any election form on behalf of any individual.
            Reason for change
    Medicare beneficiaries participating in MedicarePlus must 
have the information necessary to make informed decisions 
concerning enrollment in organization products. Beneficiaries 
should be assured that disclosure concerning products will 
enable them to clearly understand the opportunities and 
constraints of specific products offered by MedicarePlus 
organizations. Additionally, HMO and coordinated care type 
organization products must ensure that beneficiaries will have 
ready access to quality providers and any medically necessary 
emergency services.
            Effective date
    These provisions are effective upon enactment.

Provider-sponsored organizations (PSOs)

            Present law
    PSOs do not qualify as eligible organizations for Medicare 
managed care contracts.
            Explanation of Provision
    Overview. The Committee viewed the PSO concept as a means 
by which the Medicare program can enter directly into contracts 
with financially and clinically integrated provider-based 
organizations. However, it is the Committee's intent that in 
order to qualify as a MedicarePlus contractor, a PSO must be a 
substantial and sufficiently financially integrated network as 
to be able to assume full risk and provide the complete minimum 
Medicare benefit package, as must other MedicarePlus 
contractors. It is the Committee's expectation that PSOs will 
both enhance competition in larger markets and provide a viable 
managed care option in smaller and rural markets which have not 
been adequately served by other types of organized delivery 
systems or health insurance products.
    As defined in these provisions, PSOs will be direct 
contractors for MedicarePlus only contracts. In that context, 
the Committee thought it was important to provide for 
development of uniform federal MedicarePlus standards and in so 
doing, to preempt state regulation of PSOs except where states 
demonstrate that their regulatory model is identical to the 
federal model.
    Provider-Sponsored Organization (PSO) Defined. A PSO means 
a public or private entity that (in accordance with standards 
established under this bill) is a provider or group of 
affiliated providers that provides a substantial portion of 
health care under the contract directly through the provider or 
affiliated group of providers. In defining substantial 
proportion, the Secretary would be required to consider the 
need for such an organization to assume responsibility for a 
substantial portion of services in order to assure financial 
stability and other factors. Affiliation is specifically 
defined.
    Process for Establishing Standards and Process for State 
Certification of PSOs. These requirements are specified in 
other sections of the bill.
    Conditions for Preemption from State Insurance Licensing 
Requirements. In general, State laws that would prevent a PSO 
from complying with the applicable requirements of the bill 
would be preempted, including laws which would require a PSO to 
meet requirements for insurers or HMOs doing business in the 
state. This preemption would not apply to individuals who are 
participants or beneficiaries of an employee welfare benefit 
plan to which section 514(a) of ERISA applies and who receive 
services from a PSO. (Section 514(a) of ERISA preempts State 
laws from regulating employee welfare benefit plans, including 
health plans.) Federal preemption of PSO regulation would also 
not apply in those States with approved certification programs.
            Reason for change
    In today's employer health benefit market, many companies 
contract directly with hospitals and other providers in 
networks to provide services under employee welfare benefit 
plans. In many of these private market arrangements, the 
providers assume partial or full financial risk under the terms 
of their contracts for the cost of the health care services 
they provide. Because these are direct contracting arrangements 
that have primarily been developed under the umbrella of the 
federal preemption that employee welfare benefit plans enjoy 
under ERISA, these provider-based organizations to date are 
largely unregulated by states.
            Effective date
    These provisions are effective upon enactment.

Payments to MedicarePlus plans

            Present law
    Under a Medicare risk contract, an HMO agrees to provide or 
arrange the full scope of covered Medicare services in return 
for a single monthly capitation payment issued by Medicare for 
each enrolled beneficiary. One of the numbers used to determine 
this payment is the adjusted average per capita cost, or AAPCC. 
The other, the adjusted community rate or ACR, is discussed 
above.
    The AAPCC is Medicare's estimate of the average per capita 
amount it would spend for a given beneficiary (classified by 
certain demographic characteristics and county of residence) 
who was not enrolled in an HMO and who obtained services on the 
usual fee-for-service basis. Separate AAPCCs are established 
for enrollees on the basis of age, sex, whether they are in a 
nursing home or other institution, and whether they are also 
eligible for Medicaid, and the county of their residence. These 
AAPCC values are calculated in four basic steps:
          Medicare national average calendar year per capita 
        costs are projected for the future year under 
        consideration. These numbers are known as the U.S. per 
        capita costs (USPCCs) and are estimated average 
        incurred benefit costs per Medicare enrollee and 
        adjusted to include program administration costs. 
        USPCCs are developed separately for Parts A and B of 
        Medicare, and for costs incurred by the aged, disabled, 
        and those with ESRD in those two parts of the program.
          Geographic adjustment factors that reflect the 
        historical relationships between the county's and the 
        Nation's per capita costs are used to convert the 
        national average per capita costs to the county level.
          Expected Medicare per capita costs for the county are 
        adjusted to a fee-for-service basis by removing both 
        reimbursement and enrollment attributable to Medicare 
        beneficiaries in prepaid plans.
          The recalculated county per capita cost is converted 
        into rates that vary according to the demographic 
        variables enumerated above: age, sex, institutional 
        status, Medicaid status.
    For each Medicare beneficiary enrolled under a risk 
contract, Medicare will pay the HMO 95 percent of the rate 
corresponding to the demographic class to which the beneficiary 
is assigned.
            Explanation of provision
    The principal change outlined below is the new methodology 
for establishing contribution levels to plans across markets. 
This is done to correct serious flaws and inequities that have 
developed over time under the current law. It is the 
Committee's view that the system for setting contribution 
levels to MedicarePlus plans is a crucial and intrinsic part of 
the foundation on which the MedicarePlus program is to be built 
and requires serious attention.
    In general, a MedicarePlus organization under a contract 
with the Secretary would be paid, with respect to coverage of 
an individual in a payment area for a month, an amount equal to 
the monthly adjusted MedicarePlus capitation rate with respect 
to that individual for that area. Each year, the Secretary 
would be required to determine and announce no later than 
September 7 the annual MedicarePlus capitation rate for each 
payment area for the year, and the factors to be used in 
adjusting monthly payment rates. An explanation of the 
assumptions and changes in methodology would have to be 
included in sufficient detail so that organizations could 
compute monthly adjusted MedicarePlus capitation rates. The 
Secretary would be required to provide advance notice (at least 
45 days prior to the announcement) of the proposed changes in 
the methodology and assumptions used to develop the rates, and 
give organizations an opportunity to comment.
    Monthly Adjusted MedicarePlus Capitation rate. Each month, 
the MedicarePlus organization would be paid for an individual 
in a payment area, and in a class (as described below), 1/12 of 
that year's annual MedicarePlus capitation rate. This amount 
would be adjusted to reflect the relative actuarial value of 
Medicare benefits with respect to individuals in a class 
compared to the national average for individuals in all 
classes. A payment area is a county (or equivalent area 
specified by the Secretary) except for the end stage renal 
disease (ESRD) population, in which case the area is the State.
     For purposes of calculating rates, the Medicare population 
would be divided into three separate groups: the aged, the 
disabled, and those who have been determined to have ESRD. The 
Secretary would be required to define appropriate classes of 
enrollees, based on age, gender, welfare status, 
institutionalization, and such other factors as the Secretary 
determined to be appropriate so as to ensure actuarial 
equivalence. The Secretary could add, modify, or substitute for 
such classes to improve determination of actuarial equivalence. 
The Secretary would be required to conduct the research needed 
to provide for greater accuracy in the adjustment of capitation 
rates. This could include research into the addition or 
modification of classes. The Secretary would have to report to 
Congress on this research by January 1, 1997.
     Per Capita Growth Rates. In general, payment rates for 
each area would be calculated so as to improve contribution 
levels in rural and low service utilization markets. Payments 
to health plans from 1996 onward would be ``decoupled'' from 
local fee-for-service expenditures and paid instead on a 
budgeted system. Rates would be established so that over time, 
payments to areas with higher-than-average utilization of 
services would be increased more slowly than payments to areas 
with lower-than-average utilization. In addition, payments 
would be calculated so as to ensure that legitimate costs of 
doing business in different areas (based on certain input 
prices) would be recognized in the contribution levels.
     To establish the payment rates for 1996, areas would be 
classified according to their average per capita utilization of 
services (see below). Those areas experiencing the lowest 
utilization in services would be assigned a per capita growth 
rate of 9.7 percent, the next lower, 8.0 percent, the median, 
5.3 percent, the next higher, 4.7 percent, and those with the 
highest utilization, being assigned a per capita growth rate of 
4.0 percent. A further adjustment might be necessary to ensure 
that the total capitation payments made in 1996 are the same as 
would have otherwise been made if the per capita growth rate 
for all areas were equal to the national average per capita 
growth rate of 5.3 percent.
     To establish the payment rates for years after 1996, the 
Secretary would be required to compute a per capita growth rate 
for each year for each of the five service utilization cohorts. 
This computation of payments for each cohort is pegged to the 
national average per capita growth rate which is as follows:
          1996 = 5.3%
          1997 = 3.8%
          1998 = 4.6%
          1999 = 4.3%
          2000 = 3.8%
          2001 = 5.5%
          2002 = 5.6%
          Subsequent years = 5.0%
The median service utilization cohort would receive the 
national average per capita growth rate for the year. Those 
areas assigned to the lowest service utilization cohort would 
get 187.5 percent of the national average growth rate, and 
those in the highest would get 75 percent. The Secretary would 
calculate intermediate growth rates for the second and fourth 
cohorts at an amount that would assure budget neutrality 
relative to the national average per capita growth rates. 
Specifically, the growth rates for each cohort are as follows:
          lowest = 187.5% of the national average per capita 
        growth rate (NAGR)
          lower = 150% of the NAGR or lower if needed to meet 
        budget neutrality
          median = the average NAGR
          higher = gets a rate calculated to achieve budget 
        neutrality, but not less than 75% of the NAGR.
          highest = 75% of the NAGR.
    Assignment of Payment Areas to Service Utilization Cohorts. 
Each year the Secretary would assign each payment area to a 
utilization cohort based on a service utilization index value:
          lowest--less than .80
          lower--.80-.89
          median--.90-1.09
          higher--1.10-1.19
          highest--1.20 or more
The service utilization index value would be equal to the 
annual MedicarePlus capitation rate for each payment area 
divided by the input-price adjusted national capitation rate 
for that area for the year. (The utilization index for one year 
would be used to set cohorts for the update for the next year). 
The input-price adjusted capitation rate would be calculated by 
multiplying the weighted average capitation rate by an input 
price index (separate indices would be applied for different 
types of services). For 1996, the Secretary would apply an 
input price adjustment specified in the legislation; for 1997, 
the Secretary could continue to use the special rules for 1996. 
The Secretary would develop refined input price adjustments to 
be used in later years.
    Payment Process. The Secretary would be required to make 
monthly payments in advance to the plan for each individual 
enrolled with a MedicarePlus organization. The payment would be 
retroactively adjusted to take into account any differences 
between the actual number of individuals enrolled with an 
organization and the number of such individuals estimated to be 
so enrolled in determining the amount of the advance payment.
    Special Rules for Individuals Electing High-Deductible/
Medisave Products. In the case of an individual who elected a 
high-deductible/medisave product, the payment to the 
MedicarePlus organization could not exceed the premium for the 
high-deductible product and the difference between the amount 
that would have otherwise been paid. Anything in addition to 
that amount would be paid directly into the individual's 
medisave account on a monthly basis.
    Payments from Trust Fund. Payments to the MedicarePlus 
organizations would be made from the HI and SMI trust funds in 
such proportion as the Secretary determined reflected the 
relative weights that benefits under Parts A and B represented 
of Medicare's actuarial value.
            Reason for change
    The current system for calculating capitation payments for 
HMOs under the Medicare program has led to highly variable 
payment levels even in areas of close geographic proximity, and 
has generated volatile changes in payment levels in particular 
markets from year to year. In addition, contribution levels are 
suppressed in rural areas and are excessive in selected urban 
areas, relative to what is necessary to encourage or induce 
private plans to participate in these markets. The Committee 
examined the extent to which the real cost of providing health 
care services varies across markets and compared those costs to 
actual current law contribution levels. The Committee found 
that objectively measured input costs varied by only about 55%, 
while current law contribution levels varied by about 284%. The 
principal explanation for the difference in contribution levels 
across markets is in average, per beneficiary service use 
across markets.
    While a good portion of this variation in service use is 
explainable and justifiable, much is not and the Committee 
decided to take steps to narrow these differences insofar as 
they are reflected in MedicarePlus contribution levels. In so 
doing, over a several year transition period, contribution 
levels for each area would be calculated so as to improve 
contribution levels in low average service utilization markets 
and to moderate the growth in contribution levels in high 
average service utilization markets.
            Effective date
    These provisions are effective upon enactment and would be 
applied for contracting periods beginning on or after January 
1, 1996.

Establishment of MedicarePlus Standards

            Present law
    Under section 1876 of the Social Security Act, Medicare 
specifies requirements to be met by an organization seeking to 
become a managed care contractor with Medicare. There is no 
provision for NAIC to play a role in developing or establishing 
these requirements. There is no provision for PSOs.
            Explanation of provision
    Overview. The key provisions relate to obtaining the 
external assistance of the NAIC in developing longer-term 
standards for certain categories of MedicarePlus organizations, 
and the use of a special negotiated rulemaking process for 
developing standards for PSOs. With respect to the first, the 
Committee felt that the NAIC is uniquely qualified to provide 
assistance and advice on contracting standards for selected 
categories of MedicarePlus organizations due to the expertise 
of state officials in regulating the insurance markets and 
certain insuring organizations at the state level. Second, the 
process followed by the NAIC in developing standards fosters 
broad public input in areas which are highly specialized and 
require broad-based expertise. Therefore, the Committee felt 
that the Secretary could be greatly assisted by NAIC if the 
Association would agree to undertake this assistance. If the 
NAIC chose not to undertake this effort, the Secretary would 
proceed under usual rulemaking procedures.
    The Committee notes, however, that usual rulemaking 
procedures often are prolonged, and therefore has specified an 
accelerated rulemaking procedure under which to establish 
standards for PSOs. The Committee also felt that since PSOs are 
a new type of contractor, presenting unique regulatory standard 
questions in the areas of solvency and premium setting, the 
Secretary would benefit from the formation of a negotiated 
rulemaking committee that would bring affected parties and 
appropriate experts to the table rapidly to assist in 
developing satisfactory initial standards. Although the process 
for setting initial standards is accelerated, the Committee 
expects that refinements would be made over time as the 
Secretary gains experience in direct contracting with PSOs and 
final standards are developed.
    The Secretary would be required to request the NAIC to 
develop and submit within 12 months after enactment proposed 
standards consistent with the bill requirements for 
MedicarePlus organizations (other than Taft-Hartley plans and 
PSOs) and products. If the Association's submission was timely, 
the Secretary would review the proposed standards within 90 
days and promulgate them with modifications to the extent they 
did not meet the requirements. If the Association's submission 
was not timely, the Secretary would be required to promulgate 
proposed standards no later than otherwise required. Until such 
standards were established, the Secretary would provide interim 
standards as might be appropriate.
    The Secretary would also develop and promulgate 
MedicarePlus standards for limited enrollment organizations and 
products. With respect to Taft-Hartley sponsors, the Secretary 
would be required to consult with the Secretary of Labor and 
the standards would be promulgated about the same time as the 
general MedicarePlus standards. With respect to provider-
sponsored organizations, the Secretary would establish 
standards on an expedited basis using the negotiated rule-
making process under title 5 United States Code.
          The target publication date for the rule would be 
        September 1, 1996.
          Within 45 days after enactment, the Secretary, after 
        consulting with the NAIC, the American Academy of 
        Actuaries, organizations representing Medicare 
        beneficiaries, and other interested parties, would 
        publish the notice required by section 564(a) of title 
        5.
          The period for submitting comments would be shortened 
        to 15 days, and within 30 days thereafter the Secretary 
        would be required to provide for the appointment of a 
        negotiated rulemaking committee. The Secretary would be 
        required to provide for a facilitator no later than 10 
        days after the establishment of the committee.
          The negotiated rulemaking committee would be required 
        to report to the Secretary no later than June 1, 1996, 
        regarding its progress towards reaching consensus and 
        whether that was likely to occur before one month prior 
        to the target publication date. If the committee 
        reported it had failed to make significant progress 
        towards reaching consensus, or if it was unlikely to 
        reach consensus by the target date, the Secretary could 
        terminate the process and provide for the publication 
        of the rule through other methods. Otherwise, the 
        committee would be required to submit a report 
        containing the proposed rule no later than one month 
        before the target publication date.
          The Secretary would publish the rule in the Federal 
        Register by the target publication date. The rule would 
        be effective and final immediately on an interim basis, 
        but subject to revision after public notice and 
        opportunity for comment of not less than 60 days. The 
        Secretary would be required to provide for 
        consideration of such comments and republication of the 
        rule not later than one year after the target 
        publication date.
          With the initial publication of the final rule, the 
        Secretary would be required to specify a process for 
        timely review and approval of entities to be certified 
        as provider-sponsored organizations. Completed 
        applications would be acted upon within 60 days of 
        receipt.
          After consulting with the negotiated rulemaking 
        committee, the Secretary by March 1, 1996, would be 
        required to circulate a proposed application form.
    In establishing MedicarePlus standards other than on an 
interim basis, the Secretary would be required to try to be 
consistent where appropriate in order to promote the equitable 
treatment of different types of MedicarePlus organizations and 
the consistent protection for individuals who chose their 
products. Standards established on an interim basis could be 
based on currently applicable standards, such as those 
established for analogous provisions of section 1876 or the 
private health insurance market. At the time MedicarePlus 
standards change, an organization with a contract in effect 
could elect not to have the changes apply until the end of the 
contract year (or, if there is less than 6 months remaining in 
the contract year, until one year after its end). Standards 
under this section would supersede any State law or regulation 
with respect to MedicarePlus products to the extent it was 
inconsistent with the standards.
            Reason for change
    The Committee's view is that the and usual rulemaking 
procedures are somewhat cumbersome and unsuited to it's 
objectives in implementing the MedicarePlus program as 
efficiently and quickly as is feasible.
    Separately, it is the Committee's intent that standards 
promulgated for qualified associations recognize and 
distinguish the open contract and assessment features whereby 
the governing authority of certain religious fraternal benefit 
societies, such as the Mennonite Mutual Aid, protect their 
members from insolvency. The standards should also recognize 
the extent to which state insurance laws exempt religious 
fraternal benefit societies from the guaranty funds required 
for commercial health insurance companies.
            Effective date
    These provisions are effective upon enactment. The deadline 
for general interim standards is June 1, 1996. The deadline for 
initial PSO standards is September 1, 1996. The deadline for 
NAIC's recommendations, if any, is December 31, 1996.

Process for certification of MedicarePlus organizations and products

            Present law
    Eligibility to be a Medicare managed care contractor is 
determined by the DHHS. States do not play a role in certifying 
organizations as eligible to become Medicare managed care 
contractors.
            Explanation of provision
    State Certification Process. The Secretary would be 
required to approve a MedicarePlus certification and 
enforcement program established by a State for applying 
MedicarePlus standards to MedicarePlus organizations and 
products if the Secretary determined that the program 
effectively provided for the application and enforcement of the 
MedicarePlus standards. State certification would not apply to 
Taft-Hartley sponsors or, except as follows, provider-sponsored 
organizations. The Secretary would be required to establish a 
process under which States could propose to certify provider-
sponsored organizations, but State proposals would not be 
approved unless the Secretary determined that they were 
identical to the standards of this part and would not result in 
a lower level or quality of enforcement. State certification 
programs would have to provide for certification of compliance 
of MedicarePlus organizations and products not less often than 
once every three years. A State could impose user fees on 
organizations seeking certification to finance its cost. A 
MedicarePlus organization or product with State certification 
would be considered to be certified with respect to offerings 
of the product to individuals residing in the State.
    In the Committee's view, these arrangements for oversight 
of the MedicarePlus organizations and products have the 
advantage of maximizing the use of the traditional State role 
of insurance regulation and minimizing the necessity of 
expanding significantly the Federal bureaucracy to oversee 
MedicarePlus.
    The Secretary would be required to periodically review 
approved State certification programs to determine if they 
continued to provide for certification and enforcement. States 
found to be out of compliance would be allowed an opportunity 
to adopt a plan of correction. If the failure continued, the 
Federal certification process described below would be applied. 
The Secretary would be required to publish and periodically 
update a list of approved State programs.
    Federal Certification Processes. Beginning on the date 
MedicarePlus standards were established, for States for which 
certification programs were not approved and operating, the 
Secretary would be required to establish a process for 
certifying that such organizations and products met the 
standards.
    The Secretary would also be required to establish a process 
for certifying that sponsoring organizations and their 
respective MedicarePlus products met MedicarePlus standards. 
With respect to Taft-Hartley sponsors, the process would be 
established in consultation with the Secretary of Labor. To the 
maximum extent practicable, the Federal process would use 
private accreditation processes that the Secretary finds apply 
standards no less stringent than the requirements of this part. 
The use of private accreditation processes would be valid only 
for periods specified by the Secretary. The Secretary could 
impose user fees on organizations seeking certification to 
finance the cost.
    Notice to Enrollees in Case of Decertification. In the 
event that a MedicarePlus organization or product was 
decertified, the plan would have to notify each enrollee.
    Qualified Associations. The certification provisions of 
this section would not limit the authority of States to 
regulate products offered by MedicarePlus organizations that 
are qualified associations.
            Reason for change
    The Committee, as noted earlier, values the expertise of 
states in regulating insurance and believes it would be 
advantageous to the Secretary if states entered into agreements 
to manage some of the administrative oversight functions 
required under the MedicarePlus program. The Committee notes 
that with the exception of Taft-Hartley plans and, at least 
initially, PSOs, the states already license and oversee the 
solvency and market conduct of the other types of companies 
that will participate as MedicarePlus contractors.
            Effective date
    These provisions are effective upon enactment.

Contracts with MedicarePlus organizations

            Present law
    Contracts with HMOs are for 1 year, and may be made 
automatically renewable. However, the contract may be 
terminated by the Secretary at any time (after reasonable 
notice and opportunity for a hearing) in the event that the 
organization fails substantially to carry out the contract, or 
carries out the contract in a manner inconsistent with the 
efficient and effective administration of Medicare HMO law, or 
no longer meets the requirements specified for Medicare HMOs. 
The Secretary also has authority to impose certain lesser 
sanctions, including suspension of enrollment or payment and 
imposition of civil monetary penalties. These sanctions may be 
applied for denial of medically necessary services, 
overcharging, enrollment violations, misrepresentation, failure 
to pay promptly for services, or employment of providers barred 
from Medicare participation.
    To be eligible to be a risk contractor, HMOs/CMPs must have 
at least 5,000 members; if, however, they primarily serve 
members outside urbanized areas, they may have fewer enrollees 
(defined in regulation as at least 1,500). Organizations 
eligible for Medicare cost contracts may have fewer members 
than 5,000 (specified in regulation as at least 1,500).
    No more than 50 percent of the organization's enrollees may 
be Medicare or Medicaid beneficiaries. This rule may be waived, 
however, for an organization that serves a geographic area 
where Medicare and Medicaid beneficiaries make up more than 50 
percent of the population or (for 3 years) for an HMO that is 
owned and operated by a governmental entity.
    During its annual open enrollment period of at least 30 
days duration, HMOs must accept beneficiaries in the order in 
which they apply, up to the limits of its capacity, unless to 
do so would lead to violation of the 50 percent Medicare-
Medicaid maximum or to an enrolled population unrepresentative 
of the population in the area served by the HMO. If an HMO 
chooses to limit enrollment because of its capacity, regulation 
provides that it must notify HCFA at least 90 days before the 
beginning of its open enrollment period and, at that time, 
provide HCFA with its reasons for limiting enrollment.
    In areas where Medicare has risk contracts with more than 
one HMO and an HMO's contract is not renewed or is terminated, 
the other HMOs serving the area must have an open enrollment 
period of 30 days for persons enrolled under the terminated 
contract.
            Explanation of provision
    In General. In order to be paid by Medicare, the 
MedicarePlus organization would have to enter into a contract 
with the Secretary providing that the organization agreed to 
the specific terms and conditions of payment as provided under 
the bill. A contract could cover more than one MedicarePlus 
product. In addition, elections of a Medicare Plus product 
would not be permitted unless these conditions were met.
    Enrollment Requirements. The Secretary would be prohibited 
from entering a contract with a MedicarePlus organization other 
than a Taft-Hartley sponsor unless the organization had at 
least 5,000 individuals (or 1,500 individuals in the case of a 
PSO) who were receiving health benefits through the 
organization. An exception would apply if the MedicarePlus 
standards permitted the organization to have a lesser number of 
beneficiaries (but not less than 500 for a PSO) if the 
organization primarily served individuals residing outside of 
urbanized areas. The Secretary could waive this requirement 
during an organization's first 3 contract years. (The 
enrollment requirements would not apply to a high-deductible/
medisave product.)
    Contract Period and Effectiveness. The contract would be 
for at least one year, and could be made automatically 
renewable. The Secretary could terminate any contract or impose 
intermediate sanctions (as specified in the bill) on the 
organization if the Secretary found that the organization: (a) 
failed substantially to carry out the contract; (b) was 
carrying it out in a manner inconsistent with efficient and 
effective administration; or (c) was operating in a manner that 
was not in the best interests of the individuals covered under 
the contract; or (d) no longer substantially met MedicarePlus 
standards. The Secretary would not have to contract with an 
organization that had voluntarily terminated its contract with 
Medicare in the previous 5 years. Contracts for coverage under 
a high-deductible/medisave account could not take effect before 
January 1997.
    Protections Against Fraud and Beneficiary Protections. Each 
contract would provide that the Secretary or his or her 
designee would have the right to inspect or otherwise evaluate 
the quality, appropriateness and timeliness of services, and 
the organization's facilities if there was reasonable evidence 
of need for such inspection, and would have the right to audit 
and inspect the books and records. The contract would require 
the organization to provide and pay for written notice in 
advance of a termination, and a description of alternatives for 
obtaining benefits, to each enrollee. In addition, the contract 
would require the organization to comply with certain financial 
disclosure and liability requirements; to provide specified 
information; notify the Secretary of loans or other financial 
arrangements made between the organization, subcontractors and 
affiliates; and contain other provisions as the Secretary found 
appropriate. Each MedicarePlus organization would be required 
to make specified information available to enrollees.
    Intermediate Sanctions. The Secretary would be authorized 
to carry out specific remedies in the event that a contractor 
organization: (1) failed substantially to provide medically 
necessary items and services required to be provided, if the 
failure adversely affected (or had the substantial likelihood 
of adversely affecting) the individual; (2) imposed premiums on 
individuals that were in excess of the premiums permitted; (3) 
expelled or refused to re-enroll an individual; (4) engaged in 
any practice that would reasonably be expected to have the 
effect of denying or discouraging enrolling by eligible 
individuals with the organization whose medical condition or 
history indicates a need for substantial future medical 
services; (5) misrepresented or falsified information; (6) 
failed to comply with other specified requirements; or (7) 
employed or contracted with any individual or entity that was 
excluded from Medicare or Medicaid participation for the 
provision of health care, utilization review, medical social 
work, or administrative services, or employed or contracted 
with any entity for the provision through such an excluded 
individual or entity.
    The remedies would include civil money penalties of not 
more than $25,000 for each determination of a failure (as 
described above) or with respect to certain failures (such as 
denying enrollment to persons with a preexisting medical 
condition or misrepresenting information furnished to the 
Secretary), of not more than $100,000. In cases of the latter, 
the Secretary could also levy a $15,000 fine for each 
individual not enrolled. In the case of an organization 
determined to have charged excess premiums, the Secretary could 
also recover twice the excess amount (and return the excess 
amount to the affected individual). In addition, the Secretary 
could suspend enrollment of individuals and payment to the 
organization after notifying the organization of an adverse 
determination and until the Secretary was satisfied that the 
failure had been corrected or would not reoccur.
    If, under his or her authority to terminate contracts, the 
Secretary determined that an organization failure had occurred 
other than those described above, other intermediate sanctions 
could be imposed. These include: (1) civil money penalties up 
to $25,000 if the deficiency directly adversely affected (or 
had the likelihood of adversely affecting) an individual under 
the organization's contract; (2) penalties of not more $10,000 
for each week after the Secretary initiated procedures for 
imposing sanctions; and (3) suspension of enrollment until the 
deficiency had been corrected and the Secretary determined was 
unlikely to recur.
    Procedures for Imposing Sanctions. The Secretary could 
terminate a contract or impose the intermediate sanctions 
described above in accordance with formal investigation and 
compliance procedures established by the Secretary which follow 
certain specifications (e.g., the organization is given a 
chance to implement a corrective action plan).
    Use of Interim, Final Regulations. To carry out the 
MedicarePlus contracting responsibilities, the Secretary would 
be authorized to promulgate regulations that take effect on an 
interim basis, after notice and pending opportunity for public 
comment.
            Reason for change
    These provisions are derived mainly from current law, but 
the Committee wants to emphasize that no MedicarePlus product 
can be sold, nor payment be made to a MedicarePlus 
organization, until or unless the organization has entered into 
a contract with the Secretary.
            Effective date
    These provisions are effective upon enactment.

Sec. 15003. Duplication and coordination of Medicare-related products

            Present law
    Many Medicare beneficiaries purchase private health 
insurance to supplement their Medicare coverage. These 
individually purchased policies are commonly known as Medigap 
policies. OBRA 90, P.L. 101-508 provided for a standardization 
of Medigap policies. OBRA 90 also substantially modified the 
antiduplication provision contained in law. The intent of the 
OBRA 90 anti-duplication provision was to prohibit sales of 
duplicative Medigap policies. However, the statutory language 
applied, with very limited exceptions, to all ``health 
insurance policies'' sold to Medicare beneficiaries. Observers 
noted that this provision could thus apply to a broad range of 
policies including hospital indemnity plans, dread disease 
policies, and long-term care insurance policies.
    The Social Security Amendments of 1994 (P.L.103-432) 
included a number of technical modifications to the Medigap 
statute, including modifications to the anti-duplication 
provisions. Under the revised language, it is illegal to sell 
or issue the following policies to Medicare beneficiaries: (i) 
a health insurance policy with knowledge that it duplicates 
Medicare or Medicaid benefits to which a beneficiary is 
otherwise entitled; (ii) a Medigap policy, with knowledge that 
the beneficiary already has a Medigap policy, or (iii) a health 
insurance policy (other than Medigap) with knowledge that it 
duplicates private health benefits to which the beneficiary is 
already entitled. A number of exceptions to these prohibitions 
are established. The sale of a medigap policy is not in 
violation of the provisions relating to duplication of Medicaid 
coverage if: (i) the State Medicaid program pays the premiums 
for the policy; (ii) in the case of qualified Medicare 
beneficiaries (QMBs), the policy includes prescription drug 
coverage; or (iii) the only Medicaid assistance the individual 
is entitled to is payment of Medicare Part B premiums.
    The sale of a health insurance policy (other than a Medigap 
policy) that duplicates private coverage is not prohibited if 
the policy pays benefits directly to the individual without 
regard to other coverage. Further, the sale of a health 
insurance policy (other than a Medigap policy to an individual 
entitled to Medicaid) is not in violation of the prohibition 
relating to selling of a policy duplicating Medicare or 
Medicaid, if the benefits are paid without regard to the 
duplication in coverage. This exception is conditional on the 
prominent disclosure of the extent of the duplication, as part 
of or together with, the application statement.
    P.L.103-432 provided for the development by the NAIC of 
disclosure statements describing the extent of duplication for 
each of the types of private health insurance policies. 
Statements were to be developed, at a minimum, for policies 
paying fixed cash benefits directly to the beneficiary and 
policies limiting benefits to specific diseases. The NAIC 
identified 10 types of health insurance policies requiring 
disclosure statements and developed statements for them. These 
were approved by the Secretary and published in the Federal 
Register on June 12, 1995.
            Explanation of provision
    Duplication and Coordination of Medicare-Related Products. 
The provision would modify the anti-duplication provisions. It 
would be unlawful to sell to a Medicare beneficiary (including 
a person under MedicarePlus) a health insurance policy (other 
than a Medigap policy) with knowledge that it duplicated 
benefits under Medicare or Medicaid. It would be unlawful to 
sell, to persons not electing MedicarePlus, a Medigap policy 
with knowledge that the person is entitled to benefits under 
another Medigap policy. It would be unlawful to sell to a 
person electing MedicarePlus a Medigap policy duplicating 
benefits to which the individual is otherwise eligible under 
Medicare or another Medigap policy. A policy would be 
considered duplicative if the policy provided specific 
reimbursement for identical items and services to the extent 
paid for under Medicare. A policy would be considered to 
coordinate if it provided for payment of benefits without 
regard to other health benefits coverage of the individual. The 
provision would change the disclosure requirements contained in 
P.L.103-432 to require plans to disclose the extent to which 
they may coordinate benefits with Medicare as part of their 
outline of coverage.
    A health insurance policy (or a rider to an insurance 
contract which is not a health insurance policy) that 
coordinates against or excludes items and services covered 
under Medicare, and for policies sold after January 1, 1996, 
discloses such coordination or exclusion in the policy's 
outline of coverage would not be considered duplicative. For 
this purpose, health insurance policies would include policies 
providing benefits for long-term care, nursing home care, home 
health care, or community-based care.
    The provision would prohibit the imposition of criminal or 
civil penalties or the bringing or continuing of legal action 
relating to selling duplicative policies if the penalty or 
action was based on actions occurring after November 1, 1991 
and before enactment of OBRA of 1995 and if the policy was not 
duplicative under the revised language. The provision would 
also prohibit a State from imposing any requirement related to 
the sale or issuance of a policy (or rider) to a Medicare 
beneficiary based on the premise that the policy or rider was 
duplicative. The provision would require the Secretary to 
report within 3 years of enactment on the advisability of 
restricting the sale to Medicare beneficiaries of health 
insurance policies that duplicate other insurance policies the 
individual may have.
    The provision would specifically exclude MedicarePlus 
products from the definition of Medigap policies. It would also 
exempt health insurance products sold to persons electing 
MedicarePlus from requirements relating to sale of standardized 
benefits packages and minimum loss ratios.
    The provision would make it unlawful to sell or issue a 
health insurance policy covering expenses which would otherwise 
be counted toward meeting the annual deductible amount under a 
high deductible/medisave product.
            Reason for change
    The enactment of H.R. 5252, the Social Security Act 
Amendments of 1994 (P.L. 103-432) has created confusion in the 
insurance market regarding the sale of Medigap polices and 
other health insurance policies to individuals on Medicare. 
This has resulted because that law is ambiguous and imposes 
unreasonable requirements that are not necessarily helpful to 
the beneficiaries it is intended to protect.
    First, the statute does not define the term ``duplication'' 
and, as a result the NAIC has declared that all policies are 
duplicative of Medicare without findings of any factual 
duplication. Second, a factual determination cannot be reached 
except on a case by case basis after application of Medicare's 
coverage requirements, exclusions, and other limitations. The 
disclosure statements developed by the NAIC do not help 
beneficiaries by declaring all policies as duplicative.
    With respect to long-term care policies, the NAIC has 
recommended a disclosure statement which declares that long-
term care policies duplicate some Medicare benefits. 
Significant issues are raised with respect to long-term care 
policies that coordinate with Medicare. The Secretary's 
approval and publication of the NAICs disclosure statements in 
the Federal Register on June 12, 1995, has resulted in the 
adoption of a position which is adverse to long-term care 
policies that coordinate with Medicare. The Secretary has 
essentially taken the position that such policies are 
technically illegal as of October 31, 1994. However, the 
Secretary has not issued a written legal explanation or 
promulgated a rule stating its position. The Secretary's 
position on long-term care policies assumes that duplication 
exists and, therefore, policies must pay benefits regardless of 
other coverage.
    Concerns have been expressed to the Committee that the 
current lack of clarity regarding duplication is causing a 
significant chilling effect on the marketing of long-term care 
insurance.
    Coordination of benefits with Medicare of long-term care 
policies is consistent with current public policy. Both State 
and Congressional policy is supportive of long-term care 
policies being coordinated with Medicare. The Robert Wood 
Johnson state Medicaid and private long-term care policy 
partnership program requires coordination with Medicare. 
Importantly, current federal legislative proposals establishing 
standards for long-term care policies specify that long-term 
care policies must provide coordination with Medicare.
    Finally, the developed statements do not meet the intent of 
Congress which has been to allow coordination with long-term 
care policies and provide clear, understandable information to 
Medicare beneficiaries regarding the choice of health insurance 
coverage to meet their personal needs. During Senate 
consideration of H.R. 5252, Senator Dodd and Senator Moynihan 
engaged in a colloquy that clearly stated it was not the intent 
of H.R. 5252 to halt the sale of public private long-term care 
term insurance partnership programs involving policies that 
coordinate with Medicare. In December of 1994, in a letter to 
the NAIC, Senator Packwood and Congressman Archer stated that 
the objectives for duplication statements were for them to be, 
``straight forward, simple, and required only for policies 
where there is unquestionable duplication.''
            Effective date
    The provisions of this section are effective as if they 
were included in the enactment of section 4354 of the Omnibus 
Budget Reconciliation Act of 1990.

Sec. 15004. Transitional rules for current Medicare HMO program

            Present law
    There is no provision for transition rules under current 
law.
            Explanation of provision
    The Secretary would be prohibited from entering into any 
new risk sharing contract under section 1876 with an eligible 
organization for any contract year beginning on or after the 
date MedicarePlus standards are first established with respect 
to MedicarePlus organizations that are insurers or health 
maintenance organizations unless a contract with the 
organization had been in effect under section 1876 for the 
previous contract year. The Secretary could not extend or 
continue any risk-sharing contract for any contract year 
beginning on or after one year after the MedicarePlus standards 
are established.
    The Secretary would also be prohibited from entering into 
any cost reimbursement contract under section 1876 beginning in 
any contract year starting on or after the enactment of this 
legislation. The Secretary could not extend or continue any 
cost reimbursement contract for any contract year beginning on 
or after January 1, 1998.
    For individuals entitled to benefits under both part A and 
part B, payments for risk-sharing contracts for months 
beginning with January 1996 would be computed by substituting 
the payment rates specified in this bill in as timely a manner 
as possible. For individuals entitled to benefits only under 
part B, the substitution would be based upon the proportion of 
those rates that reflects the proportion of payments under 
title XVIII attributable to part B.
    Payments under cost reimbursement contracts under section 
1876(a) would take into account the adjustments to part A and 
part B payments made by this legislation.
    The 50:50 rule under section 1876(f) would not apply to 
contract years beginning on or after January 1, 1996.
            Reason for change
    It is the Committee's view that the 50:50 rule has become 
an unnecessary and outdated proxy for quality in health plans. 
The Committee believes that the various safeguards and 
provisions governing matters ranging from solvency, patient 
protections, quality assurance programs and other contracting 
standards provide the necessary substance that the 50:50 rule 
only attempted to provide indirectly.
            Effective date
    These provisions are effective upon enactment, except that 
the 50:50 rule would not apply to contract years beginning on 
or after January 1, 1996.

    Part 2. Special Rules for MedicarePlus Medical Savings Accounts

Sec. 15011. MedicarePlus MSAs

            Present law
    Under present law, the value of Medicare coverage and 
benefits is not includible in taxable income.
    Individuals who itemize deductions may deduct amounts paid 
during the taxable year (if not reimbursed by insurance or 
otherwise) for medical expenses of the taxpayer and the 
taxpayer's spouse and dependents, to the extent that the total 
of such expenses exceeds 7.5 percent of the taxpayer's adjusted 
gross income. Medical expenses for this purpose include amounts 
paid for medical insurance, including Medicare Part B premiums 
paid by the taxpayer.
    Under present law, there are no specific tax provisions for 
MedicarePlus medical savings accounts (``MedicarePlus MSAs'').
            Explanation of provision
    Under the proposal, individuals who are eligible for 
Medicare would be permitted to choose either the traditional 
Medicare program or a plan with a high deductible insurance 
policy and a MedicarePlus MSA. To the extent an individual 
chooses such a plan, the Secretary of Health and Human Services 
would make a specified contribution directly into a 
MedicarePlus MSA designated by such individual. Only 
contributions by the Secretary of Health and Human Services 
could be made to a MedicarePlus MSA and such contributions 
would not be included in the taxable income of the MedicarePlus 
MSA holder.1 Income earned on amounts held in a 
MedicarePlus MSA would not be currently includible in taxable 
income. Withdrawals from a MedicarePlus MSA would be excludable 
from taxable income if used for the qualified medical expenses 
of the MedicarePlus MSA holder.
    \1\ An individual would not have taxable income merely because the 
individual can choose among various Medicare Plus options and the 
traditional Medicare program.
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    Definition of MedicarePlus MSAs. In general, a MedicarePlus 
MSA would be a tax-exempt trust (or a custodial account) 
created exclusively for the purpose of paying the qualified 
medical expenses of the account holder that meets requirements 
similar to those applicable to individual retirement 
arrangements (``IRAs''). 2 The trustee of a MedicarePlus 
MSA could be a bank, insurance company, or other person that 
demonstrates to the satisfaction of the Secretary of the 
Treasury that the manner in which such person would administer 
the trust would be consistent with applicable requirements.
    \2\ For example, no MedicarePlus MSA assets could be invested in 
life insurance contracts. MedicarePlus MSA assets could not be 
commingled with other property except in a common trust fund or common 
investment fund, and an account holder's interest in a MedicarePlus MSA 
would be nonforfeitable. In addition, if an account holder engages in a 
prohibited transaction with respect to a MedicarePlus MSA or pledges 
assets in a MedicarePlus MSA, rules similar to those for IRAs would 
apply, and any amounts treated as distributed to the account holder 
under such rules would be treated as not used for qualified medical 
expenses.
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    A MedicarePlus MSA trustee would be required to make such 
reports as may be required by the Secretary of the Treasury. A 
$50 penalty would be imposed for each failure to file without 
reasonable cause.
    Taxation of distributions from a MedicarePlus MSA. 
Distributions from a MedicarePlus MSA that are used to pay the 
qualified medical expenses of the account holder would be 
excludable from taxable income regardless of whether the 
account holder is enrolled in a Medisave plan at the time of 
the distribution. 3 Qualified medical expenses generally 
would be defined as under the rules relating to the itemized 
deduction for medical expenses (sec. 213). However, for this 
purpose, qualified medical expenses would not include any 
insurance premiums other than premiums for long-term care 
insurance. 4 Distributions from a MedicarePlus MSA that 
are excludable from gross income under the proposal could not 
be taken into account for purposes of the itemized deduction 
for medical expenses.
    \3\ Under the proposal, medical expenses of the account holder's 
spouse or dependents would not be treated as qualified medical 
expenses.
    \4\ Under the Tax Fairness and Deficit Reduction Act of 1995, as 
passed by the House, long-term care expenses would be treated as 
medical expenses for purposes of section 213. Under present law, the 
treatment of such expenses is unclear.
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    Distributions for purposes other than qualified medical 
expenses would be includible in taxable income. An additional 
tax of 50 percent of the amount includible in taxable income 
would apply to the extent the total distributions for purposes 
other than qualified medical expenses in a taxable year exceed 
the amount by which the value of the MedicarePlus MSA as of 
December 31, of the preceding taxable year exceeds 60 percent 
of the deductible of the plan under which the individual is 
covered. The additional tax would not apply to distributions on 
account of the disability or death of the account holder.
    Direct trustee-to-trustee transfers could be made from one 
MedicarePlus MSA to another MedicarePlus MSA without income 
inclusion.
    The proposal includes a correction mechanism so that if 
contributions for a year are erroneously made by the Secretary 
of Health and Human Services, such erroneous contributions 
could be returned to the Secretary of Health and Human Services 
(along with any attributable earnings) from the MedicarePlus 
MSA without tax consequence to the account holder.
    Treatment of MedicarePlus MSA at death. The proposal 
includes rules that would apply on the death of the 
MedicarePlus MSA owner. If the beneficiary of the MedicarePlus 
MSA is the account holder's surviving spouse and the spouse is 
eligible for Medicare, the spouse could treat the inherited 
MedicarePlus MSA as his or her own MedicarePlus MSA. If the 
spouse is not eligible for Medicare, the spouse could continue 
the MedicarePlus MSA and make withdrawals from the MedicarePlus 
MSA under the rules applicable to a medical savings account for 
individuals not eligible for Medicare under the medical savings 
account provisions of the Revenue Reconciliation Act of 1995 as 
approved by the Committee. Thus, distributions from the account 
for the qualified medical expenses of the spouse or the 
spouse's dependents (or subsequent spouse) would not be 
includible in income. Distributions not for such medical 
expenses would be includible in income, and would be subject to 
a 10-percent excise tax unless the distribution is made after 
the surviving spouse attains age 59, dies, or becomes disabled. 
However, no new contributions could be made to the account and 
earnings would not be currently includible in income.
    If the beneficiary of an inherited MedicarePlus MSA is not 
the account holder's spouse, the MedicarePlus MSA would no 
longer be treated as a MedicarePlus MSA and the value of the 
MedicarePlus MSA on the account holder's date of death would be 
included in the taxable income of the beneficiary for the 
taxable year in which the death occurred. If the account holder 
fails to name a beneficiary, the value of the MedicarePlus MSA 
on the account holder's date of death would be included in the 
taxable income of the account holder's final income tax return. 
In all cases, the value of the MedicarePlus MSA would not be 
included in the account holder's gross estate for estate tax 
purposes.
            Reason for change
    The Committee believes the cornerstone to providing 
America's senior citizens with greater power over their health 
care is to bring private sector ideas and improvements into the 
Medicare system. MedicarePlus MSAs will provide seniors with 
choices other than the traditional Medicare program and give 
them control over their own health care expenses.
            Effective date
    The proposal would be effective with respect to taxable 
years beginning after December 31, 1996.

Sec. 15012. Certain rebates excluded from gross income

            Present law
    Tax Treatment of Rebates. Present law does not provide for 
cash payments to individuals under Medicare.
            Explanation of provision
    Tax Treatment of Rebates. Under the proposal, certain 
individuals would be entitled to cash rebates under the 
MedicarePlus program. These rebates would not be includible in 
income.
            Reason for change
    MedicarePlus is a cornerstone to providing seniors with 
greater control over their health care expenses. MedicarePlus 
gives seniors choices over their health care program, and 
rewards those who choose a lower cost health insurance option.
            Effective date
    The provision would apply to rebates received after the 
date of enactment.

  Part 3. Special Antitrust Rules for Provider Sponsored Organizations

    (This Part is under the jurisdiction of the Committee on 
the Judiciary.)

Sec. 15021. Application of antitrust rule of reason to provider service 
        Networks

            Present law
    Under Federal antitrust law, agreements among competitors 
that fix prices or allocate markets are per se (automatically) 
illegal. Some joint activities, however, if deemed to create an 
entity separate from and in addition to the competitors who 
create them (i.e., true joint ventures), are judged under the 
rule of reason. The Department of Justice and the Federal Trade 
Commission have issued Statements of Enforcement Policy 
Relating to Health Care and Antitrust, which indicate the 
limited circumstances under which they will consider 
``physician network joint ventures'' not violations of Federal 
antitrust law.
            Explanation of provision
    Rule of Reason Standard. This provision states that the 
conduct of a provider service network in negotiating, making, 
or performing a contract (including the establishment and 
modification of a fee schedule and the development of a panel 
of physicians), to the extent such contract is for the purpose 
of providing health care services to individuals under the 
terms of a MedicarePlus PSO product, would not be a per se 
violation of Federal or State antitrust laws. In addition, the 
conduct of any member of such a provider service network for 
the purpose of providing health care services under a 
MedicarePlus contract would not be deemed illegal per se under 
Federal or State antitrust laws. Such conduct shall be judged 
on the basis of its reasonableness, taking into account all 
relevant factors affecting competition in properly defined 
markets.
    Definitions. This section defines ``antitrust laws'' to 
include those set out in the first section of the Clayton Act, 
15 U.S.C. Sec. 12, as well as Sec. 5 of the Federal Trade 
Commission Act, 15 U.S.C. Sec. 45, to the extent that Sec. 5 
applies to unfair methods of competition. MedicarePlus is 
defined elsewhere under these provisions. ``Health care 
provider'' is defined as any individual or entity engaged in 
the delivery of health care services that must be licensed or 
certified by State law or regulation to deliver such services. 
``Health care service'' is defined as any service for which 
payment may be made under a MedicarePlus PSO product, including 
services related to the delivery or administration of such 
service. ``MedicarePlus PSO Product'' is defined as a 
MedicarePlus product offered by a provider-sponsored 
organization under Part C of title XVIII of the Social Security 
Act. ``Provider services network'' is defined as an 
organization that meets the following requirements: It is 
organized by, operated by, and composed of members who are 
health care providers and for purposes that include health care 
services. It is funded in part by capital contributions made by 
the members of such organization.
     With respect to each contract made by such organization 
for the purpose of providing a type of health care service to 
individuals under the terms of a MedicarePlus PSO product, the 
organization requires all members of the organization to agree 
to provide health care services of such type under such 
contract, receives the compensation paid for the provision of 
such health care services, and provides for the distribution of 
such compensation. It has established, consistent with the 
requirements of the MedicarePlus program for provider-sponsored 
organizations, programs based on written guidelines to review 
the quality, efficiency, and appropriateness of treatment 
methods and health care services. It coordinates the delivery 
of health care services by all health care providers to all 
patients participating in the health care plan so as to enhance 
the quality of health care services provided and, it has 
established a grievance and appeal process to review and 
promptly resolve patient or beneficiary grievances or 
complaints. ``State'' is defined as the States, the District of 
Columbia, the Commonwealth of Puerto Rico, and any other 
territory or possession of the United States.
    Issuance of Guidelines. This provision requires the 
Attorney General and the Federal Trade Commission, within 120 
days after enactment of this bill, to issue joint guidelines 
specifying the enforcement policies and analytical principles 
they will apply with respect to the operation of the rule of 
reason standard.
            Reason for change
    The provisions is under the jurisdiction of the House 
Judiciary Committee.
            Effective date
    The provision is effective upon enactment.

                          Part 4. Commissions

Sec. 15031. Medicare Payment Review Commission.

            Present law
    The Prospective Payment Assessment Commission (PROPAC) was 
established by Congress through the Social Security Act 
Amendments of 1983 (P.L. 98-21). The Commission is charged with 
reporting each year its recommendation of an update factor for 
PPS payment rates and for other changes in reimbursement 
policy. It is also required each year to submit a report to 
Congress which provides background information on trends in 
health care delivery and financing. The Physician Payment 
Review Commission (PPRC) was established by the Congress 
through the Consolidated Omnibus Budget Reconciliation Act of 
1985 (P.L. 99-272). It was charged with advising and making 
recommendations to the Congress on methods to reform payment to 
physicians under the Medicare program. In subsequent laws, 
Congress mandated additional responsibilities relating to the 
Medicare and Medicaid programs as well as the health care 
system more generally. Both Commissions are appointed by the 
Director of the Office of Technology Assessment and are funded 
through appropriations from the Medicare trust funds.
            Explanation of provision
    The provision would establish the Medicare Payment Review 
Commission (hereafter referred to as ``the Commission'') to 
review and make recommendations to Congress concerning payment 
policies under this title. The Commission would be required to 
submit a report to Congress by June 1 of each year containing 
an examination of issues affecting the Medicare program, 
including implications of changes in health care delivery and 
in the market for health care services on the Medicare program. 
The Commission would be authorized to submit from time to time 
other reports as it deemed appropriate. The Secretary would be 
required to respond to recommendations of the Commission in 
notices of rulemaking proceedings.
    The Commission would be charged with the following specific 
responsibilities, including reviewing: (1) the appropriateness 
of the methodology for making payments to the health plans; (2) 
the appropriateness of the risk adjustment mechanisms and the 
need to adjust such mechanisms to take into account health 
status; (3) implications of risk selection; (4) the development 
and implementation of quality assurance mechanisms with respect 
to MedicarePlus organizations; and (5) the impact of the 
MedicarePlus program on beneficiary access to care.
    The Commission would also be required to review specific 
aspects of the failsafe budget mechanism established under the 
bill, including: (1) the appropriateness of the expenditure 
projections by the Secretary and growth factors for each 
Medicare sector; (2) the appropriateness of the mechanism for 
implementing reductions in payment amounts for different 
sectors; (3) the impact of the failsafe mechanism on provider 
participation; and (4) the appropriateness of the Medicare 
benefit budget, especially for fiscal years after 2002.
    In addition, the Commission would be required to review 
payments policies under Medicare parts A and B (fee-for-
service), including: (1) factors affecting expenditures in 
different sectors; (2) payment methodologies; and (3) the 
impact of payment policies on access and quality of care. It 
would also look at the effect of Medicare payment policies on 
the delivery of Medicare services and assess the implications 
of changes in the health services market on Medicare.
    The Commission would be composed of 15 members appointed by 
the Comptroller General, with the first appointments being made 
by March 31, 1996. These members would have to meet specific 
qualifications, (such as national recognition for their 
expertise in health finance), including representatives of 
consumers and the elderly. Consideration in the initial 
appointment would be given to individuals who were already 
serving on the PPRC or the PROPAC. Commissioners would serve 
for 3-year terms. The bill provides for a mechanism for filling 
vacancies, compensating commissioners, appointing a chair and 
vice chair; convening meetings; and providing for staff, 
experts, and consultants. The Commission would be authorized to 
secure directly from any department or agency information to 
carry out these provisions. It would be required to collect and 
assess information (which would be available on an unrestricted 
basis to GAO). The Commission would be subject to periodic 
audit by GAO.
    The provision authorizes such sums as may be necessary to 
be appropriated from the Medicare trust funds (60 percent part 
A and 40 percent from part B). The Comptroller General would be 
required to provide for appointment of members to the 
Commission by March 31, 1996. The PROPAC and PPRC would be 
abolished within 30 days after a majority of the Medicare 
Payment Review Commission were appointed. To the extent 
possible, the Comptroller General would be required to provide 
for the transfer from the former to the new commission assets 
and staff without any loss of benefits or seniority by virtue 
of such transfers. The Commission would be responsible for the 
preparation and submission of reports required by law to be 
submitted (and which had not been submitted by the time it was 
established) by the former commissions.
            Reason for change
    Both the PROPAC, which is responsible for hospital and 
health facilities payment policy, and the PPRC, which is 
responsible for physician payment policy and other Part B 
issues, have assumed critically important roles in assisting 
Congress with oversight and policy making for the Medicare 
program. However, with fee-for-service payment policy becoming 
relatively mature after years of refinement, Congress will 
require guidance in the future primarily in the areas of 
MedicarePlus and the new failsafe budget mechanism. These two 
areas will require evaluation and oversight best suited for a 
single commission which can view the Medicare program in terms 
of an integrated totality between Parts A and B.
            Effective date
    The provision is effective upon enactment.

Sec. 15032. Commission on the effect of the baby boom generation on the 
        Medicare Program

            Present law
    No provision.
            Explanation of provision
    The provision would establish a commission to be known as 
the Commission on the Effect of the Baby Boom Generation on the 
Medicare Program, hereafter referred to as ``the Commission.'' 
It would be required to: (1) examine the financial impact on 
the Medicare program of the significant increase in the number 
of Medicare eligible individuals which will occur approximately 
during 2010 and lasting for approximately 25 years, and (2) 
make specific recommendations to Congress with respect to a 
comprehensive approach to preserve the Medicare program for the 
period during which such individuals are eligible for Medicare. 
In making its recommendations, the Commission would be required 
to consider: (1) the amount and sources of Federal funds to 
finance Medicare, including innovative financing methods; (2) 
the most efficient and effective manner of administering the 
program, including the appropriateness of continuing the 
failsafe mechanism after 2002; (3) methods used by other 
nations to respond to comparable demographics; (4) modifying 
age-based eligibility to correspond to that under the OASDI 
program; and (5) trends in employment-related health care for 
retirees, including the use of medical savings accounts and 
similar financing devices.
    The Commission would be composed of 15 members, 3 appointed 
by the President, 6 by the Majority Leader of the Senate in 
consultation with the Minority Leader, of whom no more than 4 
are of the same party; and 6 by the Speaker of the House, after 
consultation with the Minority Leader, of whom no more than 4 
are in the same party. The provision spells out the appointment 
of a chair and vice chair, appointment of staff and 
consultants, compensation, the procedure for filling vacancies, 
and requirements relating to meetings and quorums. Upon request 
of the Commission, the Comptroller General would be required to 
conduct such studies or investigations as the Commission 
determined were needed to carry out its duties. The Director of 
CBO would be required to provide the commission with cost 
estimates, for which CBO would be compensated. The Commission 
would be authorized to detail to it employees of Federal 
agencies, and to obtain technical assistance and information 
from Federal agencies.
    The Commission would be required to submit to Congress a 
report, no later than May 1, 1997, containing its findings and 
recommendations regarding how to protect and preserve the 
Medicare program in a financially solvent manner until 2030 
(or, if later, throughout a period of projected solvency of the 
Federal Old-Age and Survivors Insurance Trust Fund). The report 
would be required to include detailed recommendations for 
appropriate legislative initiatives respecting how to 
accomplish this objective. The Commission would terminate 60 
days after the date of submission of the mandated report. An 
amount of $1.5 million would be authorized to be appropriated.
            Reason for change
    H.R. 2425 brings Medicare into fiscal balance through the 
first decade of the next century, and provides more choices for 
Medicare beneficiaries through MedicarePlus. These changes 
strengthen the Medicare program and prepare it for its next 
great challenge, the retirement of the baby-boom generation. 
The significant demographic shift occurring with the retirement 
of that generation will require further Congressional action to 
preserve Medicare for the long-term.
            Effective date
    The provision is effective upon enactment.

Sec. 15033. Change in appointment of administrator of HCFA

            Present law
    The Administrator of HCFA is appointed by the President 
with the advise and consent of the Senate.
            Explanation of provision
    Under the bill, the Administrator of HCFA would be 
appointed by the Secretary of Health and Human Services. The 
amendment would become effective on the date of enactment and 
would apply to Administrators appointed on or after the date of 
enactment.
            Reason for change
    The Committee believes that with the emphasis on the 
MedicarePlus program, the person responsible for the 
MedicarePlus program should be of equal standing with the 
Administrator of HCFA. Additionally, the Committee believes 
that it would be inappropriate to add another Presidential 
appointee to the Department of Health and Human Services.
            Effective date
    The provision is effective upon enactment.

part 5. treatment of hospitals which participate in provider-sponsored 
                             organizations

Sec. 15041. Treatment of Hospitals Which Participate in Provider-
        Sponsored Organizations.

            Present law
    No provision.
            Explanation of provision
    The amendment would provide that an organization shall not 
fail to be treated as organized and operated exclusively for a 
charitable purpose for purposes of Internal Revenue Code (IRC) 
section 501(c)(3) solely because a hospital which is owned and 
operated by such organization participates in a PSO (as defined 
in section 1845(a)(1) of the Social Security Act), whether or 
not such PSO is exempt from tax. Thus participation by a 
hospital in a PSO would be deemed to be an activity in 
furtherance of a charitable purpose (assuming the hospital 
itself qualifies for tax-exempt status under the present-law 
community benefit standard).
    The amendment also would provide that any person with a 
material financial interest in such PSO shall be treated as a 
private shareholder or individual with respect to the hospital 
for purposes of applying the private inurement prohibition in 
IRC section 501(c)(3). Accordingly, the facts and circumstances 
of each PSO arrangement would be evaluated to determine whether 
the arrangement entails impermissible private inurement or more 
than incidental private benefit (e.g., where there is a 
disproportionate allocation of profits and losses to the non-
exempt partners, the tax-exempt partner makes loans to the 
joint venture that are commercially unreasonable, the tax-
exempt partner provides property or services to the joint 
venture at less than market value, or a non-exempt partner 
receives more than reasonable compensation for the sale of 
property or services to the joint venture).
    The amendment would not change present-law restrictions on 
lobbying and political activities. In addition, the 
restrictions of IRC section 501(m) on the provision of 
commercial-type insurance would continue to apply.
            Reason for change
    The Committee believes non-profit hospitals should be 
permitted to participate in joint venture arrangements or other 
arrangements that qualify as PSOs, provided that there is no 
private inurement of non-profit hospital assets.
            Effective date
    The provision would be effective upon enactment.

                 Subtitle B--Preventing Fraud and Abuse

Sec. 15101. Increasing Awareness of Fraud and Abuse

            Present law
    No provision.
            Explanation of provision
    This provision would require the Secretary to make ongoing 
efforts to alert individuals entitled to Medicare benefits of 
the existence of fraud and abuse committed against the program, 
of the costs of such fraud and abuse, and of a toll-free 
telephone line operated by the Secretary to receive information 
about such fraud and abuse.
    The Secretary would be required to provide an explanation 
of Medicare benefits with respect to each item or service for 
which payment may be made, without regard to whether a 
deductible or coinsurance may be imposed with respect to the 
item or service.
    Any person may, at any time, request the Secretary to 
publish a ``special fraud alert,'' which is defined as a notice 
that informs the public of practices the Secretary considers to 
be suspect or of particular concern under the Medicare program 
or a State health care program. Upon receipt of a request for a 
special fraud alert, the Secretary would be required to 
investigate to determine whether to issue a special fraud 
alert. If he determines issuance of a special fraud alert 
appropriate, he would be required, in consultation with the 
Attorney General, to publish a special fraud alert in the 
Federal Register. In determining whether to issue a special 
fraud alert, the Secretary could consider whether and to what 
extent the practices in question may result in the consequences 
described in section 15214(b) relating to the criteria used to 
modify and establish safe harbors, and the extent and frequency 
of the conduct in question. Each notice issued by the HCFA that 
informs the public of practices the Secretary considers to be 
suspect or of particular concern under the Medicare program or 
a State health care program would be required to be published 
in the Federal Register, without regard to whether it was 
issued by a regional office of HCFA.
            Reason for change
    Medicare beneficiaries are frequently in the best position 
to identify fraud and abuse committed against the Medicare 
program and commonly, fraud and abuse investigations result 
from beneficiaries reporting problems regarding claims. 
Nevertheless, beneficiaries are not always notified when 
Medicare pays for services on their behalf.
            Effective date
    The provision would be effective upon enactment.

Sec. 15102. Beneficiary incentive programs

            Present law
    No provision.
            Explanation of provision
    This provision would require the Secretary, within three 
months after enactment of this bill, to establish a program to 
encourage individuals to report to the Secretary information on 
individuals and entities who are engaging or who have engaged 
in acts or omissions that constitute grounds for sanctions 
under sections 1128, 1128A, or 1128B of the Social Security 
Act, or who have otherwise engaged in fraud and abuse against 
the Medicare program. If an individual reports information to 
the Secretary under this program that serves as a basis for the 
collection by the Secretary or the Attorney General of any 
amount of at least $100 (other amount collected to the 
individual, under procedures similar to those applicable under 
section 7623 of the Internal Revenue Code of 1986.
    The Secretary would be required, within three months after 
enactment of this bill, to establish a program to encourage 
individuals to submit to the Secretary suggestions on methods 
to improve the efficiency of the Medicare program. If the 
Secretary adopts such a suggestion and savings to the program 
result, the Secretary could make a payment to the individual of 
an amount the Secretary considers appropriate.
            Reason for change
    Medicare beneficiaries are typically in the best position 
to identify potentially fraudulent or abusive practices or 
excessive charging. Moreover, the Medicare beneficiaries and 
the medical providers and suppliers who serve them are often in 
the best position to identify opportunities to improve the 
efficiency of the Medicare program and reduce fraud and abuse.
            Effective date
    The provision would be effective upon enactment.

Sec. 15103. Intermediate sanctions for MedicarePlus plans

            Present law
    A contract between the Secretary and a Medicare HMO is 
generally for a one year term, with an option for automatic 
renewal. However, the Secretary may terminate any such contract 
at any time, after reasonable notice and an opportunity for a 
hearing, if the Medicare HMO has failed substantially to carry 
out the contract, or is carrying out the contract in a manner 
inconsistent with the efficient and effective administration of 
the requirements of section 1876 of the Social Security Act, or 
if the Medicare HMO no longer substantially meets the statutory 
requirements contained in Section 1876(b),(c),(e) and (f).
            Explanation of provision
    This provision would add one more ground for termination of 
a Medicare HMO contract by the Secretary, specifying that the 
Secretary may terminate such a contract if the organization is 
operating in a manner that is not in the best interests of the 
individuals covered under the contract. In addition, the 
Secretary would have the discretion to either terminate the 
contract or to impose certain intermediate sanctions on the 
eligible organization. The sanctions available to the Secretary 
under section 1876(I)(6)(B) include civil money penalties up to 
$25,000 for each determination of non-compliance, with an 
assessment of up to $100,000 if the basis for non-compliance 
was that the eligible organization engaged in a practice which 
denied or discouraged enrollment by eligible individuals with a 
need for substantial future medical services, or if the 
eligible organization falsified information given to the 
Secretary under this section; suspension by the Secretary of 
enrollment of individuals, until the Secretary is satisfied 
that the basis for the determination has been corrected and is 
not likely to recur; or suspension of payment to the 
organization for individuals enrolled after the date of a 
determination of non-compliance, until the Secretary is 
satisfied that the basis for the determination has been 
corrected and is not likely to recur.
    If the basis for the determination by the Secretary that an 
intermediate sanction should be imposed on an eligible 
organization is other than that the organization has failed 
substantially to carry out its contract with the Secretary, 
then the Secretary may apply intermediate sanctions as follows: 
civil money penalties of not more than $25,000 for each 
determination if the deficiency that is the basis of the 
determination has directly adversely affected (or has the 
substantial likelihood of adversely affecting) an individual 
covered under the organization's contract; civil money 
penalties of not more than $10,000 for each week of a 
continuing violation; and suspension of enrollment of 
individuals until the Secretary is satisfied that the 
deficiency has been corrected and is not likely to recur.
    Whenever the Secretary seeks to either terminate a Medicare 
HMO contract or impose intermediate sanctions on such an 
organization, the Secretary must do so pursuant to a formal 
investigation and under compliance procedures which provide the 
organization with an opportunity to develop and implement a 
corrective action plan to correct the deficiencies that were 
the basis of the Secretary's adverse determination. The 
Secretary would impose more severe sanctions on organizations 
that have a history of deficiencies or that have not corrected 
deficiencies brought to their attention. The Secretary's 
compliance procedures must also include reasonable notice and 
opportunity for a hearing (including the right to appeal an 
initial decision) before the Secretary imposes any sanction or 
terminates the contract of a Medicare HMO, and there must not 
be any unreasonable or unnecessary delay between the finding of 
a deficiency and the imposition of sanctions.
    Effective Date. The amendments made by this section would 
apply to contract years of eligible organizations beginning on 
or after January 1, 1996.
            Reason for change
    The Secretary currently lacks sufficient authority to 
effectively oversee the Medicare HMO provisions. This section 
provides the Secretary with the discretion she needs to 
terminate the contract with a Medicare Plus organization or 
apply intermediate sanctions if the organization is operating 
in a manner that is not in the best interests of the 
beneficiaries covered under the contract. Under current law, 
the Secretary may only impose intermediate sanctions against a 
Medicare risk-contract HMO for a specified list of contract 
violations.
            Effective date
    The provision would be effective upon enactment.

Sec. 15104. Voluntary disclosure program

            Present law
    Current law does not provide for a program permitting the 
Secretary to mitigate penalties for parties who voluntarily 
disclose acts or omissions under Section 1128, 1128A, or 1128B. 
Section 1128 directs the Secretary to impose mandatory 
exclusions from the Medicare program and State health care 
programs 5 for convictions of criminal offenses related to 
the delivery of an item or service under Medicare or State 
health care programs, as well as for convictions relating to 
patient abuse in connection with the delivery of a health care 
item or service. The Secretary has permissive exclusion 
authority for a number of criminal offenses relating to health 
care-related fraud, theft, embezzlement, financial misconduct, 
kickbacks, misuse of controlled substances, and activities 
relating to license revocations or suspensions, claims for 
excessive charges or unnecessary services, and the like. 
Section 1128A prescribes civil money penalties for a number of 
illegal activities relating to the submission of claims for 
reimbursement under the Medicare and Medicaid programs. 
Violations which are subject to civil money penalties include 
submitting claims for items or services not provided or which 
were false or fraudulent, providing services when not a 
properly licensed physician, and providing items or services by 
an excluded practitioner. Civil money penalties may also be 
imposed on a hospital which knowingly makes a payment to a 
physician, or a physician who knowingly accepts payment from a 
hospital, as inducement to limit or reduce care to a Medicare 
or Medicaid patient. Section 1128B sets forth criminal 
penalties under Medicare and State health care programs for 
offenses such as false statements in benefit applications or in 
determining rights under such benefits, concealing information 
relating to benefits, submitting claims from non-licensed 
physicians, and soliciting and receiving kickbacks for 
referrals or soliciting or receiving remuneration for admitting 
a Medicaid patient.
    \5\ ``State health care programs'' are defined as the Medicaid 
program and programs receiving funds under the Maternal and Child 
Health Service Block Grant, or the Social Services Block Grant. This 
definition applies to sections 1128, 1128A and 1128B.
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            Explanation of provision
    Under this section a new provision would be added to Title 
XI of the Social Security Act directing the Secretary of Health 
and Human Services to establish a program encouraging 
individuals and entities to voluntarily disclose to the 
Secretary information on acts or omissions which constitute 
grounds for the imposition of a sanction under Section 1128, 
1128A, or 1128B of the Social Security Act.
    Under this program the Secretary would have the authority 
to mitigate any applicable sanction which the Secretary might 
otherwise have imposed under Section 1128, 1128A or 1128B. The 
Secretary would not be required to reduce or mitigate 
applicable sanctions, but may do so, following a voluntary 
disclosure. This section would specify that no qui tam lawsuit 
could be brought under the False Claims Amendments Act of 1986, 
by private parties against the individual or entity with 
respect to a voluntarily disclosed act or omission under 
sections 1128, 1128A or 1128B.
            Reason for change
    A voluntary disclosure program has been used effectively by 
the Department of Defense, and development of a voluntary 
disclosure program for Medicare has been recommended and is 
supported by the Office of the Inspector General in the DHHS.
            Effective date
    The provision would be effective upon enactment.

Sec. 15105. Revisions to current sanctions

            Present law
    Civil money penalties may be imposed under section 1128A 
for false or fraudulent claims for reimbursement under the 
Medicare and Medicaid programs. In addition, twice the amount 
claimed may be assessed against the fraudulent party for false 
or fraudulent claims.
    Section 1128B provides that whoever knowingly and willfully 
makes a false statement or representation in connection with 
the furnishing of items or services for which payment is or may 
be made by Medicare shall, upon conviction of a program related 
felony, be fined not more than $25,000 or imprisoned for not 
more than five years, or both. Section 1128(b) authorizes the 
Secretary to impose permissive exclusions of individuals and 
entities from Medicare program, Medicaid program and programs 
receiving funds under the Maternal and Child Health Block 
Grant, or the Social Services Block Grant. Permissive 
exclusions are authorized for a number of offenses relating to 
fraud, kickbacks, obstruction of an investigation, and misuse 
of controlled substances, and activities relating to license 
revocations or suspensions, claims for excessive charges or 
unnecessary services, and the like. There are currently no 
minimum exclusion periods specified for most of the prohibited 
activities under this subsection. There is, however, a minimum 
period of exclusion of not less than five years for mandatory 
exclusions imposed by the Secretary under section 1128(a).
            Explanation of provision
    This section would provide that civil monetary penalties 
under Section 1128A be doubled for violations occurring after 
the date of enactment of this Act.
    This section would also establish a minimum period of 
exclusion of three years for permissive exclusions of 
individuals or entities convicted, under Federal or State law, 
of health care criminal offenses relating to fraud, theft, 
embezzlement, breach of fiduciary responsibility or other 
financial misconduct, as well as for convictions relating to 
obstruction of an investigation, or of a criminal offense 
involving misuse of controlled substances. The Secretary may 
determine that a shorter period than three years is appropriate 
in cases of mitigating circumstances, or that a longer period 
is appropriate because of aggravating circumstances.
    Permissive exclusions in cases relating to license 
revocations or suspensions for reasons bearing on an 
individual's or entity's professional competence or financial 
integrity, and permissive exclusions following the suspension, 
exclusion or sanction of an individual or entity from any 
Federal or State health care program for reasons bearing on 
professional competence or financial integrity, shall be not 
less than the period during which the individual's or entity's 
license to provide health care has been revoked or suspended, 
or the individual or entity has been excluded or suspended from 
a Federal or State health care program.
    In cases where the Secretary has permissive authority to 
exclude an individual or entity from Medicare or State health 
care programs due to submission of claims for excessive charges 
or for medically unnecessary services, the period of exclusion 
shall be not less than one year.
            Reason for change
    The Committee felt that greater deterrence was needed 
against fraud and abuse in the Medicare program.
            Effective date
    The amendments made by this section would apply to acts or 
omissions occurring on or after January 1, 1996.

Sec. 15106. Consolidated funding for anti-fraud and abuse activities 
        under Medicare integrity program

            Present law
    Currently Medicare's program integrity functions are 
subsumed under Medicare's general administrative budget. These 
functions are performed, along with general claims processing 
functions, by insurance companies under contract with the 
Health Care Financing Administration.
            Explanation of provision
    This provision establishes a Medicare Integrity Program 
under which the Secretary would promote the integrity of the 
Medicare program by entering into contracts with eligible 
private entities to carry out certain activities. These 
activities would include the following: (1) review of 
activities of providers of services or other individuals and 
entities furnishing items and services for which payment may be 
made under the Medicare program, including medical and 
utilization review and fraud review, (2) audit of cost reports, 
(3) determinations as to whether payment should not be, or 
should not have been, made by reason of the Medicare as 
secondary payor provisions, and recovery of payments that 
should not have been made, and (4) education of providers of 
services, beneficiaries, and other persons with respect to 
payment integrity and benefit quality assurance issues.
    Eligibility of Entities. There are four eligibility 
requirements for an entity to enter into a contract to carry 
out any of the activities described in subsection (b). They are 
the following: (1) the entity has demonstrated capability to 
carry out such activities; (2) 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, in the 
investigation and deterrence of Medicare fraud and abuse; (3) 
the entity's financial holdings, interests, or relationships 
will not interfere with its ability to perform the functions 
required by the contract in an effective and impartial manner; 
and (4) the entity meets such other requirements as the 
Secretary may impose.
    Process for Entering into Contracts. The Secretary is 
authorized to establish, by regulation, procedures for entering 
into contracts; such procedures would be required to include at 
least the following three components: (1) the Secretary would 
be required to determine the appropriate number of separate 
contracts necessary to carry out the Program and the 
appropriate times at which the Secretary shall enter into such 
contracts; (2) the provisions of section 1153(e)(1), regarding 
the authority of the Secretary to contract, would apply to 
contract and contracting authority under this section, except 
that competitive procedures would have to be used when entering 
into new contracts or at any other time the Secretary considers 
appropriate; and (3) a contract could 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.
    Limitation on Contractor Liability. The Secretary is 
required to provide, by regulation, for the limitation of a 
contractor's liability under the Program. The Secretary would 
employ, to the extent he finds appropriate, the same or 
comparable standards and other substantive and procedural 
provisions as are contained in section 1157.
    Transfer of Amounts to Medicare Anti-Fraud and Abuse Trust 
Fund. The Secretary is required to transfer, for each fiscal 
year, from the Federal Hospital Insurance Trust Fund and the 
Federal Supplementary Medical Insurance Trust Fund, to the 
Medicare Anti-Fraud and Abuse Trust Fund under subsection (g), 
amounts necessary to carry out the activities of subsection 
(b). The allocation shall reasonably reflect the proportion of 
expenditures from part A and part B.
    Medicare Anti-Fraud and Abuse Trust Fund. There is 
established in the Treasury of the United States the Anti-Fraud 
and Abuse Trust Fund, which would consist of gifts and bequests 
as may be made unconditionally to the Trust Fund and such 
amounts as may be deposited in the Trust Fund as provided in 
subsection (f), paragraph (3) of this subsection, and title XI.
    The Secretary of the Treasury would be required to invest 
such amounts of the Fund as he determines are not required to 
meet current withdrawals from the Fund in government account 
serial securities. Any interest derived from investments would 
be credited to the Fund.
    The following moneys would be required to be deposited in 
the Trust Fund: that portion of amounts recovered in relation 
to section 1128A arising out of Medicare claims as remains 
after application of subsection (f)(2) relating to repayment of 
the Federal Hospital Insurance Trust Fund and the Federal 
Supplementary Medical Insurance Trust Fund; fines imposed under 
section 1128B arising out of a claim under this title; and, 
penalties and damages (other than those funds awarded to a 
relator or for restitution under the False Claims Act) in cases 
involving claims relating to programs under Medicare or 
Medicaid.
    There would be appropriated from the Trust Fund for each 
fiscal year such amounts as are necessary to carry out the 
Medicare Integrity Program, subject to the appropriation amount 
limits specified in the section for fiscal years 1996 through 
2002.
    The Secretary would be required to submit an annual report 
to Congress on the amount of revenue generated and disbursed by 
the Trust in each fiscal year.
    Elimination of FI and Carrier Responsibility for Carrying 
Out Activities Subject to Program. This provision prohibits any 
agency, organization, or carrier, from carrying out (or 
receiving payment for carrying out) any activity pursuant to an 
agreement under this section to the extent that the activity is 
carried out pursuant to a contract under the Medical Integrity 
Program.
    Direct Spending for Medicare-Related Activities of the 
Inspector General. This provision appropriates from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund such amounts as are necessary to 
carry out Medicare-related activities, subject to the 
appropriation amount limits specified in the section for fiscal 
years 1996 through 1998 and subsequent years. The Medicare-
related activities described in this section are: (1) 
prosecuting Medicare-related matters through criminal, civil, 
and administrative proceedings; (2) conducting investigations 
relating to the Medicare program; (3) performing financial and 
performance audits of programs and operations relating to the 
Medicare program; (4) performing inspections and other 
evaluations relating to the Medicare program; and (5) 
conducting provider and consumer education activities regarding 
Medicare fraud and abuse.
            Reason for change
    Currently, funding for health care fraud and abuse 
prevention, detection, and enforcement actions are considered 
discretionary spending, and thus subject to limits. Despite 
evidence of substantial net savings to the government by 
investing more in these activities, spending has not kept pace 
with the growth in program expenditures. As a result, today 
Medicare spends over 30 percent less per claim on fraud and 
abuse activities than it spent in 1989--despite strong evidence 
that fraud and abuse problems are on the rise. These provisions 
provide a mandatory funding stream to modernize Medicare's 
fraud and abuse detection and prevention capabilities and give 
Medicare greater flexibility to contract with companies having 
demonstrated expertise in the area of claims review and fraud 
and abuse detection and prevention. Similarly, the DHHS Office 
of Inspector General has had significant decreases in its 
budget for investigating Medicare-related fraud and abuse. 
Under current law its funding for these activities is likewise 
considered discretionary and subject to limits regardless of 
the potential net savings to Medicare.
            Effective date
    The provision would be effective upon enactment.

Sec. 15107. Permitting carriers to carry out prior authorization for 
        certain items of durable medical equipment (DME)

            Present law
    The Secretary is authorized to develop and periodically 
update a list of DME items that are subject to unnecessary 
utilization throughout a carrier's entire service area or a 
portion of such area. The Secretary may also develop and update 
a list of DME suppliers with a substantial number of denied 
claims or a pattern of over utilization resulting from the 
business practices of suppliers. Carriers are required to make 
advance coverage determinations for items on the lists 
developed by the Secretary.
            Explanation of provision
    Carriers would be authorized to develop the same lists of 
DME items and suppliers that the Secretary is authorized to 
develop. Carriers would also be authorized to make advance 
coverage determinations, regardless of whether or not the 
Secretary has promulgated a regulation for the list, except for 
items and suppliers on the lists that a carrier could not make 
advance determinations until the expiration of the 30-day 
period beginning on the date the Secretary or carrier places 
the item on the list.
            Reason for change
    Schemes to defraud the Medicare program in the area of 
durable medical equipment and supply items have been 
particularly problematic to Medicare over the past decade. 
Medicare contractors do not have sufficient flexibility to 
require prior authorization for individual medical supply or 
equipment items that are being billed to the program 
excessively, or for individual suppliers that are submitting 
unwarranted claims.
            Effective date
    The provision would be effective upon enactment.

Sec. 15108. Establishment of health care anti-fraud task force

    (This section is under the jurisdiction of the Committee on 
the Judiciary.)
            Present law
    No provision.
            Explanation of provision
    Within 120 days of enactment the Attorney General would be 
required to establish, within the Department of Justice, a 
nationwide ``Health Care Anti-Fraud Task Force'' to prosecute 
health care fraud offenses. This Task Force would be set up in 
consultation with the Secretary of Health and Human Services, 
the Secretary of the Treasury, the Secretary of Veterans' 
Affairs, and the Chair of the Board of Governors of the United 
States Postal Service. There would be at least one fully 
staffed operational segment of the Task Force in each judicial 
district of the United States, with at least one Federal 
representative from each entity engaged on a full-time basis in 
the activities of the Task Force. The Task Force would maintain 
separate accounting of its finances, personnel, case load, and 
resolution of claims and actions.
            Reason for change
    There is concern over a lack of coordination between the 
federal and state law enforcement efforts to combat health care 
fraud and abuse. The task force approach has been used 
successfully in other areas of law enforcement.
            Effective date
    The provision would be effective upon enactment.

Sec. 15109. Study of adequacy of private quality assurance programs

            Present law
    No provision.
            Explanation of provision
    The Administrator of HCFA, through the Office of Research, 
would be required to contract for a study of the adequacy of 
quality assurance programs and consumer protections used by 
plans enrolling Medicare beneficiaries under part C of title 
XVIII of the Social Security Act, including an analysis of the 
effectiveness of such programs in protecting plan enrollees 
against the risk of insufficient provision of benefits which 
may result from utilization controls. A report would be 
submitted to Congress on the study not later than 6 months 
after the conclusion of the 5-year period for the study.
            Reason for change
    With the growing participation of Medicare beneficiaries in 
HMOs and other types of coordinated care, additional vigilance 
is necessary concerning the potential for the under-provision 
of medically necessary services.
            Effective date
    The provision would be effective upon enactment.

Sec. 15110. Penalty for False Certification for Home Health Services

            Present law
    No provision.
            Explanation of provision
    This provision would add an additional civil monetary 
penalty of not more than three times the amount of the 
payments, or $5,000, whichever is greater, for a physician who 
certifies that an individual meets all of Medicare's 
requirements to receive home health care while knowing that the 
individual does not meet all such requirements.
            Reason for change
    Expert testimony has indicated that physicians sometimes do 
not adequately review statements certifying patients' 
eligibility for home health care.
            Effective date
    The provision would be effective upon enactment.

                     Subtitle C--Regulatory Relief

            part 1. physician ownership and referral reform

Sec. 15201. Repeal of prohibitions based on compensation arrangements

            Present law
    The law establishes a ban on certain financial arrangements 
between a referring physician and an entity. Specifically, if a 
physician (or immediate family member) has an ownership or 
investment interest in or a compensation arrangement with an 
entity, the physician is prohibited from making a referral to 
the entity for services for which Medicare would otherwise pay. 
Further, the entity may not bill for such services. For 
purposes of the ban, an ownership or investment interest may be 
through equity or debt or other means and includes an interest 
in an entity that holds an ownership or investment interest in 
any entity providing designated health services. A compensation 
arrangement is generally defined as any arrangement involving 
any remuneration between a physician (or immediate family 
member) and an entity.
    The law includes general exceptions to the ban. Some are 
general exceptions to both the ownership and compensation 
arrangement prohibitions, while others relate only to ownership 
or only to compensation arrangements.
            Explanation of provision
    The provision would repeal the prohibitions based on 
compensation arrangements.
            Reason for change
    Current law places Medicare in a position of micro-managing 
compensation arrangements whether or not there is any evidence 
or research that these arrangements are inappropriate or would 
result in fraudulent or abusive referral patterns. Current law 
also would require Medicare to review literally hundreds of 
thousands of contracts and other arrangements to determine 
whether or not particular physicians are paying the appropriate 
rent on office space, a lab is paying a lawful amount for a 
medical director's services, or a clinic is paying 
appropriately for physician salaries. The anti-kickback 
provisions in current law will still apply to any appropriate 
compensation arrangements.
            Effective date
    The provision would be effective upon enactment.

Sec. 15202. Revision of designated health services subject to the 
        prohibition

            Present law
    OBRA 89, which established the initial self-referral ban 
applied the ban to referrals for clinical laboratory services 
only. OBRA 93 (as modified by P.L. 103-432) extended the ban to 
additional ``designated health services'', effective January 1, 
1995. These designated health services are: (i) physical 
therapy services; (ii) occupational therapy services; (iii) 
radiology, including magnetic resonance imaging, computerized 
axial tomography scans, and ultrasound services; (iv) radiation 
therapy services and supplies; (v) durable medical equipment 
and supplies; (vi) parenteral and enteral nutrients, equipment 
and supplies; (vii) prosthetics, orthotics, and prosthetic 
devices; (viii) home health services and supplies; (ix) 
outpatient prescription drugs; and (x) inpatient and outpatient 
hospital services.
            Explanation of provision
    This provision revises the list of ``designated health 
services''. Under the provision, the referral ban would apply 
only to: (i) physical therapy services; (ii) occupational 
therapy services; (iii) magnetic resonance imaging and 
computerized axial tomography scans; and (iv) parenteral and 
enteral nutrients, equipment and supplies.
            Reason for change
    There are many services covered under current law for which 
there has been no demonstrable record of abuse related to 
physician ownership or there is lacking even a presumption that 
physician ownership and referral may lead to abusive practices. 
There are other areas where there is not even a significant 
potential problem or which may have the unattended consequence 
of producing the opposite effect--the under utilization of 
service. Included in this category are radiation therapy 
services, and prosthetic and orthotic devices.
            Effective date
    The provision would be effective upon enactment.

Sec. 15203. Delay in implementation until promulgation of regulations

            Present law
    The self-referral provisions included in OBRA 89 applied to 
Medicare referrals for clinical laboratory services made on or 
after January 1, 1992. OBRA 93 expanded the referral ban to a 
list of ``designated health services'' and extended the 
prohibition to Medicaid. OBRA 93 also included significant 
revisions to the OBRA 89 provisions. In general, the amendments 
made by OBRA 93 (as amended by P.L. 103-432) apply with respect 
to referrals made on or after January 1, 1995; however some 
provisions had a retroactive effective date of January 1, 1992.
    On August 14, 1995, DHHS issued final regulations 
implementing the OBRA 89 requirements. These regulations are 
effective September 13, 1995. DHHS noted that these regulations 
relate only to referrals for clinical laboratory services and 
address only those provisions that had an effective date, 
including a retroactive effective date, of January 1, 1992.
            Explanation of provision
    The proposal specifies that the amendments made by OBRA 93 
would not apply to any referrals made before the effective date 
of the final implementing regulations promulgated by the 
Secretary of Health and Human Services.
            Reason for change
    The OBRA 93 expansion of designated services and other 
self-referral legislative amendments created ambiguity over 
what constitutes an acceptable ownership or investment 
arrangement. Because of the ambiguous nature of these 
provisions, there is confusion over compliance issues which are 
particularly problematic for medical providers because of 
severe penalties for noncompliance.
            Effective date
    The provision would be effective upon enactment.

Sec. 15204. Exception to prohibitions

            Present law
    The law includes general exceptions to the self-referral 
ban. Some are general exceptions to both the ownership and 
compensation arrangement prohibitions, while others relate only 
to ownership or only to compensation arrangements.
    A general exception applies to in-office ancillary services 
which are defined as furnished by the physician making the 
referral, another physician in the same group practice, or 
personally by individuals directly supervised by the physician 
or another physician in the same group practice.
    The in-office ancillary services exception contains a site-
of-service requirement. To meet the exception, the services 
must be furnished in: (i) a building in which the referring 
physician or other member of the group practice provides 
services unrelated to the furnishing of designated health 
services; or (ii) in a building used for the centralized 
provision of the group's designated health services. OBRA 93 
specified that for clinical laboratory services only, the 
exception only applies if the services are provided in a 
centralized location.
    The law includes an exception, related only to the 
ownership and investment prohibition, for rural providers. To 
be eligible for an exception, the entity must be in a rural 
area. Further, the exception only applies if substantially all 
of the designated health services furnished by the entity are 
furnished to individuals residing in rural areas.
    The law includes a general exception for services provided 
by a prepaid health plan to enrollees. The definition of 
prepaid plans includes those either meeting Medicare 
requirements, operating as prepaid plans under a Medicare 
demonstration project, or meeting the requirements of a 
federally-qualified health maintenance organization.
            Explanation of provision
    The provision would modify the exception for in-office 
ancillary services. It would repeal the site-of-service 
requirement. It would also provide that non-physician personnel 
must be under the general supervision (rather than the direct 
supervision) of a physician. An individual would be under the 
general supervision of a physician (or a group practice of 
which the physician is a member) if the physician is legally 
responsible for the services performed by the individual and 
for ensuring the individual meets licensure requirements and 
certification standards regardless of whether or not the 
physician is physically present when the services are 
delivered.
    The provision would modify the provision relating to rural 
providers. To qualify for an exception, not less than 75 
percent of the designated health services must be furnished to 
individuals residing in rural areas.
    The provision would modify the definition of prepaid plans 
to refer to managed care plans. It would add an exception for 
entities which are MedicarePlus organization or other entities 
under the following conditions. The entity must provide or 
arrange for the provision of services pursuant to a written 
agreement between the organization and an individual or entity. 
The agreement must place the individual or entity at 
substantial financial risk for the cost or utilization of 
services which the individual or entity is obligated to 
provide. This obligation may be through withhold, capitation, 
incentive pool, per diem payment, or any other similar risk 
arrangement which places the individual or entity at 
substantial financial risk.
    The provision would add a new exception for shared facility 
services. The services must be furnished by the facility to 
patients of shared facility physicians; the physicians must 
have a financial relationship under a shared facility 
arrangement with the facility. A shared facility arrangement is 
one: (i) which is only between physicians who are providing 
services (unrelated to shared facility services) in the same 
building; (ii) in which the overhead expenses are shared among 
the physicians in accordance with previously determined 
methods; and (iii) which, in the case of a corporation, is 
wholly owned and controlled by shared facility physicians.
    The provision would add a new exception for services 
furnished in communities which the Secretary of Health and 
Human Services determines do not have access to alternative 
providers.
    The provision would add an exception for services furnished 
in ambulatory surgical centers, renal dialysis facilities, 
comprehensive rehabilitation facilities, and hospice programs.
            Reason for change
    Current law would prohibit a number of long standing 
arrangements, including arrangements for physicians to use non-
physician practitioners without being physically present in the 
office suite, or arrangements for physicians practicing in the 
same building to share clinical laboratory, x-ray and other 
designated services when treating their own patients, where 
there is no indication that fraudulent or abusive referral 
arrangements have been experienced. In addition, there is 
clearly no incentive in managed care arrangements for 
fraudulent or abusive referrals. The current law treatment of 
managed care entities places a potential chilling effect on 
arrangements designed to encourage efficient use of medical 
services.
            Effective date
    The provision would be effective upon enactment

Sec. 15205. Repeal of reporting requirements

             Present law
     The law establishes a reporting requirement for entities 
providing services under Medicare. Reports are to include 
information on the entity's ownership, investment and 
compensation arrangements.
            Explanation of provision
     The provision would delete the reporting requirements.
            Reason for change
     Current law places the undue administrative burden on 
providers and suppliers of providing separate reports to the 
Health Care Financing Administration for the self-referral 
provisions.
            Effective date
     The provision would be effective upon enactment.

Sec. 15206. Preemption of state law

            Present law
     No provision.
            Explanation of provision
     The provision would specify that the self-referral 
provisions preempt State law to the extent State law was 
inconsistent.
            Reason for change
     The current self-referral law was designed to deter 
fraudulent or abusive referral patterns. The reforms in this 
bill concentrate the self referral law on the areas where it is 
most appropriate. State and federal law, however, may be 
inconsistent regarding requirements limiting physician 
ownership of health services and other compensation 
arrangements.
            Effective date
     The provision would be effective upon enactment.

Sec. 15207. Effective date

            Present law
     No provision.
            Explanation of provision
     The provisions in this part apply to referrals made on or 
after August 14, 1995, regardless of whether or not regulations 
are promulgated to carry out such amendments.
            Reason for change
     Under current law there is ambiguity over the potential 
liability of persons who would be in violation of the Medicare 
self-referral regulations issued on August 14, 1995 if the 
provisions discussed in this part remain in place without 
publication of regulations.
            Effective date
     The provision would be effective upon enactment.

                Part 2. Other medicare regulatory relief

Sec. 15211. Repeal of Medicare and Medicaid coverage data bank

            Present law
     Under the Medicare secondary payer (MSP) program, the 
individual's employer-based group health insurance, liability 
insurance, or no-fault insurance may be the primary payer in 
certain cases. The OBRA 93 provided for the establishment of a 
Medicare and Medicaid Coverage Data Bank by the Secretary of 
Health and Human Services. OBRA 93 required employers having or 
contributing to a group health insurance plan to submit 
employee health insurance information to the Secretary, on an 
annual basis, for calendar years 1994-1997. The 1994 submission 
was due by February 1995. The information was intended to 
facilitate the identification of both Medicare secondary payer 
cases and those circumstances in which employer-based 
insurance, rather than Medicaid, should be the primary payer.
     A number of employers voiced strong opposition to the Data 
Bank requirements. One of the principal concerns was that 
employers would be required to report information which they 
did not routinely collect. In response to these concerns, the 
Conference agreement accompanying the FY 1995 Labor, DHHS, and 
Education appropriations bill (P.L. 103-333) contained specific 
language relating to the Data Bank. It directed that no DHHS 
funds should be used for the implementation of or planning for 
implementation of the Bank.
             Explanation of provision
     The provision would repeal the Data Bank requirement.
            Reason for change
     The General Accounting Office (GAO) has testified that the 
``enormous administrative burden the data bank would place on 
HCFA and the nation's employers . . . likely would do little or 
nothing to enhance current efforts to identify those 
beneficiaries who have other health insurance coverage.'' The 
basis for GAO's conclusion is discussed in detail in their 
report ``Medicare/Medicaid Data Bank Unlikely to Increase 
Collections From Other Insurers'' released on May 6, 1994.
     In addition, the administrative simplification provisions 
contained in this bill will provide the basis for prospectively 
identifying instances where an individual has other health 
insurance coverage which should be primary to Medicare 
coverage.
            Effective date
     This provision will be effective upon enactment.

Sec. 15212. Clarification of level of intent required for imposition of 
        sanctions

     Clarification of Level of Knowledge Required for 
Imposition of Civil Monetary Penalties.
            Present law
     Civil money penalties may be imposed for seeking 
reimbursement under the Medicare and Medicaid programs for 
items or services not provided or for services provided by 
someone who was not a licensed physician, whose license was 
obtained through misrepresentation, or who misrepresented his 
or her qualification as a specialist, or where the claim is 
otherwise fraudulent. Civil penalties may also be sought for 
presenting a claim for payments which are in violation of: 1) 
contracts limiting payment due to assignment of a patient, 2) 
agreements with state agencies limiting permitted charges, 3) 
agreement with participating physicians or suppliers, and 4) 
agreements with providers of service. Civil penalties may also 
be sought against persons who provide false or misleading 
information that could reasonably be expected to influence a 
decision to discharge a person from a hospital. A person is 
subject to these provisions if they presented a claim and he or 
she ``knows or should have known'' that the claim fell into one 
of the categories listed above. Further, the person presenting 
the claim may be assessed twice the amount fraudulently 
claimed.
             Explanation of provision
     This section adds a requirement that a person is subject 
to this provision when they ``knowingly'' present a claim that 
the person ``knows or should know'' fell into one of the above 
categories. Thus, an assessment under this provision would only 
be made where a person had actual knowledge that they had 
submitted a claim or had provided false or misleading 
information, and where they had actual knowledge of the 
fraudulent nature of the claim, act in deliberate ignorance, or 
acted in reckless disregard. The requirement that a person 
``knowingly'' presents a claim or ``knowingly'' makes a false 
or misleading statement which influences discharge would 
prevent charging persons who inadvertently perform these acts.
            Reason for change
     The current standard is inconsistent with the Civil False 
Claims Act which applies to all other federal programs. 
Additionally, concerns have been raised that the standard 
currently applied by the Health and Human Services Department 
Office of the Inspector General is less specific and can result 
in pursuit of allegations based on simple mistakes.
            Effective date
     The provision would be effective upon enactment.
    Clarification of Effect and Application of Safe Harbor 
Exceptions.
            Present law
     The Medicare and Medicaid anti-kickback provisions 
generally prohibit anyone from providing or offering to provide 
remuneration in cash or in kind in return for a patient 
referral whose treatment is paid for in whole or in part by 
Medicare or Medicaid. The provisions in section 1128B(b) of the 
Social Security Act also prohibit the solicitation or receipt 
of such remuneration and arranging or recommending a referral 
for remuneration. Violations are felonies and are subject to a 
fine of up to $25,000 or imprisonment for up to five years, or 
both. Certain business practices are exempted from the 
application of these provisions and the DHHS Office of 
Inspector General (OIG) is directed to issue safe harbor 
regulations for additional payment practices that would not be 
subject to criminal prosecution or provide a basis for 
exclusion from participation in Medicare and Medicaid. If an 
individual or entity engages in a business arrangement which is 
the subject of a safe harbor provision and complies with all of 
the applicable requirements of the provision that individual or 
entity will be assured that he or she will not be prosecuted.
            Explanation of provision
     This section provides that the specification of any 
payment practice by the Secretary under this provision are to 
be solely for the purpose of adding additional exceptions to 
the types of conduct, and are not for the purpose of limiting 
the scope of such exceptions. In addition, such a specification 
of an acceptable payment practice shall apply notwithstanding 
whether the party engaging in that practice actually does 
intend to induce Medicaid or Medicare referrals.
            Reason for change
     The safe harbor regulations have been rendered meaningless 
by the DHHS OIG decision to deny the protection of the 
regulations whenever the OIG believes that an arrangement that 
meets the regulatory requirements is nevertheless a ``sham''. 
Looking behind the safe-harbor, defeats its purpose, and 
renders a chilling effect on the very safe harbors which are 
meant to protect legitimate financial arrangements.
            Effective date
     The provision would be effective upon enactment.
    Limiting Imposition of Anti-Kickback Penalties to Actions 
With Significant Purpose to Induce Referrals.
            Present law
     The anti-kickback provisions in Section 1128B(b) prescribe 
criminal penalties for individuals or entities that knowingly 
and willfully offer or pay remuneration to induce business 
reimbursed under Medicare or State health care programs.
            Explanation of provision
     This section would amend Section 1128B(b)(2) to provide 
that a person was subject to the anti-kickback provisions only 
if the remuneration which is offered is done so ``for the 
significant purpose of inducing'' business which would be 
reimbursed under Medicare or State health care programs. This 
will narrow the application of the anti-kickback provisions to 
only those situations where inducement was a significant 
purpose of remuneration.
            Reason for change
     Although financial arrangements between a provider or 
supplier and an entity that is capable of referring business 
might be motivated by many factors, a desire to increase 
referrals or purchases can almost always be inferred. The fact 
that the motivations behind a financial arrangement are not 
entirely free of profit considerations should not be grounds to 
impose criminal penalties, as is currently possible under the 
``one-purpose'' rule. Under current law, virtually every 
provider or supplier that enters into a financial arrangement 
with an entity that has the potential to refer Medicare or 
Medicaid business is at risk of an anti-kickback investigation.
            Effective date
    The provision would be effective upon enactment.

Sec. 15213. Clarification of and additions to exceptions to anti-
        kickback penalties

            Present law
    The anti-kickback provisions in Section 1128B(b) contain 
several exceptions. These exceptions include discounts or other 
reductions in price obtained by a provider of services or other 
entity under Medicare or a State health care program if the 
reduction in price is properly disclosed and appropriately 
reflected in the costs claimed or charges made by the provider 
or entity under Medicare or a State health care program; any 
amount paid by an employer to an employee for employment in the 
provision of covered items or services; any amount paid by a 
vendor of goods or services to a person authorized to act as a 
purchasing agent for a group of individuals or entities under 
specified conditions; a waiver of any coinsurance under Part B 
of Medicare by a Federally qualified health care center with 
respect to an individual who qualifies for subsidized services 
under a provision of the Public Health Service Act; and any 
payment practice specified by the Secretary as a Safe Harbor 
exception.
            Explanation of provision
    The provision would add a new exception for remuneration 
between an organization and an individual or entity providing 
services pursuant to a written agreement between the 
organization and the entity. The organization must be either a 
MedicarePlus entity or its written agreement must place the 
individual at substantial financial risk for the cost or 
utilization of services which the individual or entity is 
obligated to provide. This obligation may be through withhold, 
capitation, incentive pool, per diem payment, or any other 
similar risk arrangement which places the individual or entity 
at substantial financial risk.
            Reason for change
    Absent an exemption, nearly all managed care arrangements 
(except those that comply with the current safe harbors for 
HMOs that contract with Medicare or Medicaid) could potentially 
be deemed unlawful. This is because an essential feature of 
managed care is the offer by providers of remuneration (in the 
form of discounting or risk sharing) in exchange for a stream 
of patients. Another common feature is the offer by managed 
care organizations to providers of incentives to encourage 
adherence to cost-saving measures and protocols. There is no 
assurance that either of these (as well as other arrangements 
inherent in managed care) are permissible under the anti-
kickback law.
            Effective date
    The provision would be effective upon enactment.

Sec. 15214. Solicitation and publication of modifications to existing 
        safe harbors and new safe harbors

            Present law
    The 1987 Medicare and Medicaid Patient and Program 
Protection Act specified various payment practices which, 
although potentially capable of inducing referrals of business 
under Medicare or State health care programs, will be protected 
from criminal prosecution or civil sanction under the anti-
kickback provisions of the law. The 1987 law also established 
authority for the Secretary to promulgate regulations 
specifying additional payment practices, known as ``safe 
harbors'', that will not be subject to sanctions under the 
fraud and abuse provisions.
            Explanation of provision
    The Secretary shall publish an annual notice in the Federal 
Register soliciting proposals for modifications to existing 
safe harbors, new safe harbors, interpretive rulings and 
special fraud alerts. After considering such proposals the 
Secretary, in consultation with the Attorney General, shall, 
after notice and comment, issue final rules modifying existing 
safe harbors and establishing new safe harbors, as appropriate. 
The Secretary, in considering these proposals, may consider the 
extent to which such a proposal would affect access to health 
care service, quality of health care services, patient freedom 
of choice among health care providers, competition among health 
care providers, cost of health care programs to Government, 
over-utilization of health care services, and any other factors 
appropriate to prevent fraud and abuse in health care programs 
of the Federal Government. The Inspector General shall annually 
issue a report on the proposals received by the Secretary, the 
proposal issued by the Secretary, and an explanation of the 
reason for rejection of any of the proposals received.
            Reason for change
    Greater public involvement in the processes for identifying 
changes or additions to safe harbors, interpretive rulings, and 
fraud alerts could stimulate more timely and responsive 
information for assisting providers and suppliers in 
understanding Medicare requirements.
            Effective date
    The provision would be effective upon enactment.

Sec. 15215. Issuance of advisory opinions under title XI

            Present law
    No provision.
            Explanation of provision
    The Secretary shall issue regulations to provide for a 
procedure by which a party may seek an advisory opinion. These 
opinions are binding, and may include: (1) what constitutes 
prohibited enumeration, (2) what arrangements are excluded from 
these prohibitions, (3) whether an arrangement satisfies the 
criteria established by the Secretary, (4) what constitutes an 
inducement to reduce or limit services, (5) whether an activity 
constitutes grounds for imposition of penalties. Such opinions 
shall not address whether the fair market value was received 
for goods and whether an individual is a bona fide employee for 
tax purposes. The Secretary shall respond to advisory opinions 
within 30 days after the request is made, and a fee equal to 
the costs incurred shall be charged. This section will be 
effective January 1, 1996.
            Reason for change
    Providers who want to comply with the fraud and abuse 
statutes should be able to receive guidance from the government 
regarding financial arrangements. Without this ability, a 
chilling effect is placed on legitimate arrangements, 
particularly when providers are attempting to structure new and 
innovative health care delivery systems to help bring health 
care costs under control.
            Effective date
    The provision would be effective upon enactment.

Sec. 15216. Prior notice of changes in billing and claims processing 
        requirements for physicians' services

            Present law
    Currently, changes in Medicare policy are effective 30 days 
after their dissemination by notices in carrier newsletters or 
bulletins. In addition to these newsletters and bulletins, many 
carriers offer educational programs to notify physicians and 
their staff of changes in Medicare regulations and 
requirements.
            Explanation of provision
    The provision would require the Secretary to give at least 
120 days notice before making changes in billing and processing 
requirements for physician's claims.
            Reason for change
    Concerns have been raised that this 30 day period does not 
allow enough time for physicians and their staffs to modify 
their systems in order to be in compliance.
            Effective date
    The provision is effective upon enactment.

               part 3. promoting physician self-policing

    (This Part is under the jurisdiction of the Committee on 
the Judiciary.)

Sec. 15221. Exemption from antitrust laws for certain activities of 
        medical self-regulatory entities

            Present law
    No provision.
            Explanation of provision
    This section would provide an exemption from Federal and 
State antitrust laws for health care service activities which 
are considered safe harbors under this section. A safe harbor 
is generally described as any activity of a medical self-
regulatory entity relating to standard setting or standard 
enforcement activities that are designed to promote the quality 
of health care services provided to patients. However, no 
activity of a medical self-regulatory entity may be deemed to 
be a safe harbor under this section if the activity is 
conducted for purposes of financial gain, or the activity 
interferes with the provision of health care services by any 
health care provider who is not a member of the specific 
profession which is subject to the authority of the medical 
self-regulatory entity.
    For purposes of this section the term ``antitrust laws'' 
has the meaning given it in subsection (a) of the first section 
of the Clayton Act, except that the term includes section 5 of 
the Federal Trade Commission Act to the extent that section 
applies to unfair methods of competition. A ``medical self-
regulating entity'' is defined as a medical society or 
association, a specialty board, a recognized accrediting 
agency, or a hospital medical staff, and includes the members, 
officers, employees, consultants, and volunteers or committees 
of such an entity. ``Standard setting or standard enforcement 
activities'' mean accreditation of health care practitioners, 
health care providers, medical education institutions, or 
medical education programs, as well as technology assessment 
and risk management activities, the development and 
implementation of practice guidelines or practice parameters, 
or official peer review proceedings undertaken by a hospital 
medical staff or a medical society for purposes of evaluating 
the professional conduct or quality of health care provided by 
a medical professional. This section also defines ``health care 
service'', ``health care provider'' and ``health benefit 
plan''.
            Reason for change
    Self-regulatory entities set standards in such areas as 
medical education, professional ethics, and specialty 
certification. These standard-setting activities have been 
challenged in recent years under the antitrust laws. The 
Congress attempted to address this problem with the Health Care 
Quality Improvement Act of 1986, which provided antitrust 
protection for peer review actions conducted in ``good faith''. 
While beneficial, this law shifted the debate in antitrust 
litigation to whether the participants acted in ``good faith''. 
The result is that the stream of antitrust suits has continued. 
The purpose of the medical self-regulatory entity exemption 
included in this proposal is to bar antitrust suits against 
medical self-regulatory entities that develop or enforce 
medical standards. This would include activities such as 
accreditation of health care providers and medical education 
programs and institutions, technology assessment and risk 
management, development and implementation of practice 
guidelines and parameters, and official peer review 
proceedings. The exemption would cover suits against individual 
members of the groups which undertake these activities as well 
as the organizational entity on whose behalf they act. This 
section is under the jurisdiction of the Judiciary Committee.
            Effective date
    The provision would be effective upon enactment.

                  Subtitle D--Medical Liability Reform

    (The provisions of this Subtitle are under the jurisdiction 
of the Committee on the Judiciary.)

                       part 1. general provisions

Sec. 15301. Federal reform of health care liability actions

            Present law
    There are no uniform Federal standards governing health 
care liability actions.
            Explanation of provision
    The provision would provide for Federal reform of health 
care liability actions. It would apply to any health care 
liability action brought in any State or Federal court. The 
provisions would not apply to any action for damages arising 
from a vaccine-related injury or death or to the extent that 
the provisions of the National Vaccine Injury Compensation 
Program apply. The provisions would preempt State law to the 
extent State law provisions were inconsistent with the new 
requirements. However, it would not preempt State law to the 
extent State law provisions were more stringent.

Sec. 15302. Definitions

            Present law
    No provision.
            Explanation of provision
    The provision would define the following terms for purposes 
of the Federal reforms: actual damages; alternative dispute 
resolution system; claimant; clear and convincing evidence; 
collateral source payments; economic loss; harm; health care 
liability action; health care liability claim; health care 
provider; noneconomic damages; person; punitive damages; and 
State.

Sec. 15303. Effective date

            Present law
    No provision.
            Explanation of provision
    The provision would specify that Federal reforms apply to 
any health care liability action brought in any State or 
Federal court that is initiated after the date of enactment. 
The provision would also apply to any health care liability 
claim subject to an alternative dispute resolution system. Any 
health care liability claim or action arising from an injury 
occurring prior to enactment would be governed by the statute 
of limitations in effect at the time the injury occurred.

      part 2. uniform standards for health care liability actions

Sec. 15311. Statute of limitations

            Present law
    To date reforms of the malpractice system have occurred 
primarily at the State level and have generally involved 
changes in the rules governing tort cases.
            Explanation of provision
    The provision would establish uniform standards for health 
care liability claims. It would establish a uniform statute of 
limitations. Actions could not be brought more than two years 
after the injury was discovered or reasonably should have been 
discovered. In no event could the action be brought more than 
five years after the date of the alleged injury.

Sec. 15312. Calculation and payment of damages

            Present law
    No provision.
            Explanation of provision
    The provision would limit noneconomic damages to $250,000 
in a particular case. The limit would apply regardless of the 
number of persons against whom the action was brought or the 
number of actions brought.
    The provision would specify that a defendant would only be 
liable for the amount of noneconomic damages attributable to 
that defendant's proportionate share of the fault or 
responsibility for that claimant's injury.
    The provision would permit the award of punitive damages 
(to the extent allowed under State law) only if the claimant 
established by clear and convincing evidence either that the 
harm was the result of conduct that specifically intended to 
cause harm or the conduct manifested a conscious flagrant 
indifference to the rights or safety of others. The amount of 
punitive damages awarded could not exceed $250,000 or three 
times the amount of economic damages, whichever was greater. 
The determination on punitive damages would be made by the 
court and not be disclosed to the jury The provision would not 
create a cause of action for punitive damages. Further, it 
would not preempt or supersede any State or Federal law to the 
extent that such law would further limit punitive damage 
awards.
    The provision would permit either party to request a 
separate proceeding (bifurcation) on the issue of whether 
punitive damages should be awarded and in what amount. If a 
separate proceeding was requested, evidence related only to the 
claim of punitive damages would be inadmissible in any 
proceeding to determine whether actual damages should be 
awarded.
    The provision would prohibit the award of punitive damages 
in a case where the drug or device was subject to premarket 
approval by the Food and Drug Administration (FDA), unless 
there was misrepresentation or fraud.
    The provision would permit the periodic (rather than lump 
sum) payment of future losses in excess of $50,000. The 
judgment of a court awarding periodic payments could not, in 
the absence of fraud, be reopened at any time to contest, 
amend, or modify the schedule or amount of payments. The 
provision would not preclude a lump sum settlement.
    The provision would permit a defendant to introduce 
evidence of collateral source payments. Such payments are those 
which have been paid or are reasonably likely to be paid by 
health or accident insurance, disability coverage, workers 
compensation, or other third party sources. If such evidence 
was introduced, the claimant could introduce evidence of any 
amount paid or reasonably likely to be paid to secure the right 
to such collateral source payments. No provider of collateral 
source payments would be permitted to recover any amount 
against the claimant or against the claimant's recovery.

Sec. 15313. Alternative dispute resolution

            Present law
    No comparable provision.
            Explanation of provision
    The provision would further require that any alternative 
dispute resolution system used to resolve health care liability 
actions or claims must include provisions identical to those 
specified in the bill.

       Subtitle E--Teaching Hospitals; Graduate Medical Education

  Part 1. Teaching Hospital and Graduate Medical Education Trust Fund

Sec. 15401. Establishment of fund; payments to teaching hospitals

            Present law
    Medicare recognizes the costs of graduate medical education 
in teaching hospitals and the higher costs of providing 
services in those institutions. Medicare reimburses the costs 
of graduate medical education under two mechanisms: direct 
graduate medical education (GME) payments and an indirect 
medical education (IME) adjustment. The IME is designed to 
reimburse hospitals for indirect costs due to a variety of 
factors, including the extra demands placed on the hospital 
staff as a result of the teaching activity, greater severity of 
patient illness, or additional tests and procedures that may be 
ordered by residents. The direct costs of approved GME programs 
include the salaries of residents and faculty, and other 
education costs for residents, nurses, and allied health 
professionals trained in provider-operated programs and are 
paid on the basis of a formula that reflects each hospital's 
per resident costs.
            Explanation of provision
    The proposal would add a new title XXII to the Social 
Security Act (SSA) creating a trust fund in the Treasury known 
as the Teaching Hospital and Graduate Medical Education Trust 
Fund, which would make annual payment distributions to teaching 
hospitals. The Fund would consist of three accounts: the 
Indirect-Costs Medical Education Account, the Medicare Direct-
Costs Medical Education Account, and the General Direct-Costs 
Medical Education Account.
    Beginning in FY1997 and each subsequent year thereafter, 
the bill would appropriate amounts from the Treasury and 
allocations would be made from Medicare 's Part A and Part B 
trust funds, and would be transferred into the Trust Fund for 
allocation to accounts within the Trust Fund. Appropriations 
from the Treasury would be: $400 million in FY1997; $600 
million in FY1998; $2.0 billion in FY1999; $3.0 billion in 
FY2000; $4.0 billion in FY2001; and $5.8 billion in FY2002. For 
FY2003 and each subsequent fiscal year, the appropriation 
amount would be the greater of the amount appropriated for the 
preceding fiscal year, or the product of the amount 
appropriated for the preceding fiscal year and an amount equal 
to 1 plus the percentage increase in the nominal gross domestic 
product for the one-year period ending upon July 1 of the 
preceding fiscal year. The appropriated amounts would be 
allocated to the accounts by the Secretary based on the total 
amount of payments made under Medicare for indirect medical 
education (IME) and direct graduate medical education (GME) 
payments for FY1994, and the percentage of the total amount of 
payments for IME and GME.
    The proposal would require that teaching hospitals submit a 
payment document for FY1997 and any subsequent fiscal year to 
the Secretary to receive a payment from the Fund equal to the 
sum of amounts related to IME and direct GME. The payment 
document would contain such information as necessary for the 
Secretary to make payments, and the Secretary would be 
permitted to require that the information be submitted by the 
teaching hospitals in periodic reports. The proposal would also 
authorize the Secretary to make payments to authorized 
consortia of providers.
    For a teaching hospital's indirect costs, the proposal 
would determine an amount for a fiscal year as the product of: 
(1) the amount in the Indirect-Costs Medical Education Account 
for the applicable date, and (2) the hospital-specific 
percentage determined for the hospital. Once determined, the 
hospital-specific percentage would remain in effect for all 
subsequent fiscal years. The hospital-specific percentage would 
be the mean average of the respective percentages for the 
applicable period, adjusted by the Secretary on a pro rata 
basis to ensure that the sum of the percentages for all 
teaching hospitals would be equal to 100 percent. Generally, 
the applicable period would be fiscal years 1992-1994. The 
percentage determined for a teaching hospital for a fiscal year 
of the applicable period would be constituted by the ratio of: 
(1) the total amount of IME payments received by the hospital 
for the fiscal year involved, to (2) the sum of the respective 
amounts of IME payments for all teaching hospitals.
    To determine the direct costs of graduate medical education 
for a teaching hospital for a fiscal year, the proposal would 
determine an amount equal to the sum of the amount determined 
under the General Direct-Cost Medical Education Account, and 
the amount determined under the Medicare Direct-Costs Medical 
Education Account. A teaching hospital's payment amount from 
the General Account would be equal to the product of: (1) the 
amount in the General Direct-Costs Medical Education Account, 
and (2) the hospital-specific percentage. A teaching hospital's 
hospital-specific percentage for each fiscal year of the 
applicable period (1992-1994), would be determined in the same 
manner as for IME payments, except using data on GME payments 
received by the hospitals.
    Payment from the Medicare Direct-Costs Medical Education 
Account for a teaching hospital for a fiscal year would be the 
product of (1) the amount in the Medicare Direct-Costs Medical 
Education Account, and (2) the hospital-specific percentage 
determined for the teaching hospital. Unlike the other 
accounts, the hospital-specific percentage for Medicare Direct-
Costs would be determined annually based on the Secretary's 
estimate of what the hospital would have received for the year 
if the Medicare rules for GME were applicable. The hospital-
specific percentage would be the ratio of: (1) the estimate 
made by the Secretary of the GME payment amount for a teaching 
hospital in a fiscal year under Medicare's GME if the payments 
had not been discontinued; to (2) the sum of the respective 
estimates of GME payments for all teaching hospitals. This 
subsection would not apply to a teaching hospital if the 
hospital is in a State for which a demonstration project under 
section 1814(b)(3), relating to a State hospital rate-setting 
system, is in effect.
    Special rules would be applied to teaching hospitals that 
consolidated or merged and to new teaching hospitals. In the 
case of two or more teaching hospitals consolidating or merging 
that had received IME and GME payments under Medicare, the 
applicable percentage would be the sum of the percentage that 
would have been determined if the consolidation or merger had 
not occurred. For new teaching hospitals that had not received 
IME and GME payments under Medicare, the Secretary would be 
required to estimate the appropriate hospital-specific 
percentage based on the amount of IME and GME payments the 
teaching hospital would have received under Medicare. Special 
rules would also be applied to teaching hospitals that first 
received IME or GME payments under Medicare in FY1995 and 
FY1996, with the hospital-specific percentages being estimated 
by the Secretary based on the most recent data available.
    The proposal would make payments to qualifying consortium 
for the costs of graduate medical education. Qualifying 
consortium would consist of a medical residency training 
program of a teaching hospital and one or more of the following 
entities: schools of medicine or osteopathic medicine; other 
teaching hospitals; community health centers; medical group 
practices; managed care entities; entities furnishing 
outpatient services; and other such entities the Secretary 
determines to be appropriate. Payments from the accounts in the 
Trust Fund for consortium would equal the sum of: (1) the 
aggregate amount determined for the teaching hospitals of the 
consortium under the proposal; and (2) an amount determined 
using the methodology provided under the Medicare Direct-Costs 
Medical Education Account for consortia payments. Aggregate 
total payments to qualifying consortia could not exceed the sum 
of the aggregate total amount that would have been paid to the 
teaching hospitals of the consortia, and an amount equal to 1 
percent of the amount in the Medicare Direct-Costs Medical 
Education Account.
    The Secretary would be required to collect data to 
determine whether the estimates of Medicare's payments for the 
costs of IME and GME in each fiscal year were substantially 
accurate, and make corrective adjustments in subsequent 
transfers to the Trust Fund and payments to teaching hospitals.
            Reason for change
    Teaching hospitals have to meet multiple missions including 
patient service (tertiary and specialty services and services 
for the low income persons who may be more expensive to treat 
due to special needs), medical training, and research. Changes 
occurring in health care delivery and financing both in 
Medicare and the private sector have raised serious questions 
concerning the ability of many major teaching hospitals to 
survive financially while meeting these multiple missions. In 
the communities where teaching hospitals are located and in the 
health care market more broadly, the survival of these 
institutions is in question because the institutions face 
competition from other hospitals or providers and health care 
systems that do not share the same multiple missions of 
teaching hospitals. There is a significant public interest in 
maintaining the many contributions that teaching hospitals make 
to the communities in which they are located and the nation as 
a whole. These institutions, however, have often not been 
operated efficiently in the past, and Medicare has in recent 
years carried a disproportionate share of the costs of these 
hospitals considering Medicare's share of overall patient 
service costs.
            Effective date
    The provision would be effective upon enactment.

                 Part 2. Amendments to Medicare Program

Sec. 15411. Transfers to teaching hospital and graduate medical 
        education fund

            Present law
    No provision.
            Explanation of the provision
    The proposal would amend Medicare law by adding a new 
subsection (j) at the end of section 1886 of the SSA, under 
which the Secretary would, beginning in FY1997 transfer amounts 
to the Teaching Hospital and Graduate Medical Education Trust 
Fund. Amounts transferred to the Indirect-Costs Medical 
Education Account would be from the Medicare Part A trust fund 
on the basis of an estimate of the nationwide total of the 
amount that would have been paid to hospitals under Medicare's 
IME payment. The Secretary would also be required to transfer 
from Medicare Part A and B Trust Funds into the Medicare 
Direct-Costs Medical Education Account the amount estimated to 
be spent for teaching hospitals and consortium under Medicare's 
direct GME payment.
            Reason for change
    The formation of the new trust fund for teaching hospitals 
and graduate medical education requires the transfer of funds 
from Medicare trust funds.
            Effective date
    The provision would be effective upon enactment.

Sec. 15412. Modification in payment policies regarding graduate medical 
        education

            Present law
    Medicare makes additional payments to teaching hospitals 
under PPS for the indirect costs attributable to approved 
medical education programs. These indirect costs may be due to 
a variety of factors, including the extra demands placed on the 
hospital staff as a result of the teaching activity or 
additional tests and procedures that may be ordered by 
residents. Congressional reports on the PPS authorizing 
legislation indicated that the indirect medical education 
payments are also to account for factors not necessarily 
related to medical education which may increase costs in 
teaching hospitals, such as more severely ill patients, 
increased use of diagnostic testing, and higher staff-to-
patient ratios.
    The additional payment to a hospital is based on a formula 
that provides an increase of approximately 7.7 percent in the 
Federal portion of the DRG payment, for each 0.1 percent 
increase in the hospital's intern and resident-to-bed ratio on 
a curvilinear basis (i.e., the increase in the payment is less 
than proportional to the increase in the ratio of interns and 
residents to beds).
    The direct costs of approved graduate medical education 
(GME) programs (such as the salaries of residents and faculty, 
and other education costs for residents, nurses, and allied 
health professionals trained in provider-operated programs) are 
excluded from PPS and are paid on the basis of a formula that 
reflects Medicare's share of each hospital's per resident 
costs. Medicare's payment to each hospital equals the 
hospital's costs per full-time-equivalent (FTE) resident, times 
the weighted average number of FTE residents, times the 
percentage of inpatient days attributable to Medicare Part A 
beneficiaries. Each hospital's per FTE resident amount is 
calculated using data from the hospital's cost reporting period 
that began in FY1984, increased by 1 percent for hospital cost 
reporting periods beginning July 1, 1995, and updated in 
subsequent cost reporting periods by the change in the CPI. 
OBRA 93 provided that the per resident amount would not be 
updated by the CPI for costs reporting periods during FY1994 
and FY1995, except for primary care residents in obstetrics and 
gynecology. The number of FTE residents is weighted at 100 
percent for residents in their initial residency period (i.e., 
the number of years of formal training necessary to satisfy 
specialty requirements for board eligibility). Residents in 
preventive care or geriatrics are allowed a period of up to 2 
additional years that is not counted as part of the initial 
residency training period. For residents not in their initial 
residency period, the weighing factor is 50 percent. On or 
after July 1, 1996, residents who are foreign medical graduates 
can only be counted as FTE residents if they have passed 
designated examinations.
            Explanation of the provision
    The proposal would reduce the IME payment amount under 
Medicare by changing the current formula multiplier to 1.48, 
resulting in a 6.0 percent aggregate payment adjustment for 
FY1996-FY1998. A further reduction in the multiplier would 
begin in FY1999 and for each subsequent fiscal year, for a 5.6 
percent aggregate payment adjustment, for every 10 percent 
increase in teaching intensity measured by the ratio of interns 
and residents per bed, and the number of discharges expected 
under PPS.
    The GME formula would be modified to limit the number of 
residents that could be counted by a teaching hospital. The 
total number of full-time-equivalent (FTE) residents in an 
approved residency program would be limited to the total number 
of residents at a hospital as of August 1, 1995, for cost 
reporting periods beginning on or after October 1, 1995, and on 
or before September 30, 2002. For hospital cost reporting 
periods beginning on or after October 1, 1997, the weighing 
factor for a resident in the initial residency period would be 
1.0 FTEs, and the weighing factor for a resident who had 
completed the initial residency period would be 0.0 FTEs. For 
cost reporting periods beginning during FY1996, the FTE amount 
paid for medical residents who are not citizens or nationals of 
the United States (or citizens of Canada) would be reduced and 
ultimately eliminated by lowering the FTE weight that a 
hospital would be allowed to count for GME payments to: 0.75 in 
FY1996; 0.50 in FY1997; 0.25 in FY1998; and for cost reporting 
periods beginning during FY1999 or any subsequent fiscal year, 
zero.
            Reason for change
    The PROPAC in its March 1, 1995 report recommended ``the 
indirect medical education adjustment should be reduced.'' 
PROPAC recommended immediate reductions in the Medicare IME 
adjustment, and said it should ultimately be reduced by 40% 
from current levels. However, PROPAC also recommended that 
``changes in the IME adjustment should be considered in the 
context of its interactions and its effects on PPS payments, as 
well as hospitals' overall financial status.''
    The number of graduates of U.S. medical schools filling 
residency positions in teaching hospitals has remained 
approximately constant, while the total number of residencies 
have grown in recent years. Since 1988 most of this growth in 
filled residencies is attributable to foreign medical school 
graduates filling hospital residency positions in this country. 
Over 60 percent of the growth in the number of residents can be 
attributed to increases in the number of foreign medical 
graduates. As a result, between 1988 and 1993, the number of 
foreign medical school graduates grew from 14 percent of the 
total number of residents to 23 percent. The number of 
residency positions is now nearly 40 percent greater than the 
number of slots filled by graduates from American medical 
schools. Expert testimony has questioned the need for the 
current number of residency positions, and raised concerns 
about the recent and rapid growth in residency slots primarily 
filled by graduates of foreign medical schools. Expert 
testimony has also raised concerns regarding Medicare funding 
of residency positions in excess of first board certification 
or five years of training.
            Effective date
    The effective date for these provisions, unless otherwise 
specified would apply to hospital cost reporting periods 
beginning on or after October 1, 1995.

  part 3. reform of federal policies regarding teaching hospitals and 
                       graduate medical education

Sec. 15421. Establishment of advisory panel for recommending policies 
        regarding teaching hospitals and graduate medical education

            Present law
    No provision.
            Explanation of the provision
    The bill would require the Chair of the Medicare Payment 
Review Commission to establish an advisory panel on reform in 
the financing of teaching hospitals and graduate medical 
education. The advisory panel would be required to study and 
make recommendations on reforming Federal policies regarding 
teaching hospitals and the financing of graduate medical 
education. The recommendations of the panel would include the 
following: (1) the financing of graduate medical education, 
including consideration of alternative broad-based sources of 
funding; (2) the financing of teaching hospitals, including 
consideration of the competitive difficulties such hospitals 
face; (3) the methodology for making payments and the selection 
of entities to receive the payments; (4) Federal policies 
regarding international medical graduates; (5) the dependence 
of schools of medicine on service generated income; (6) the 
effects of the amendments made by the Omnibus Budget 
Reconciliation Act of 1995; (7) the feasibility and 
desirability of reducing payments for graduate medical 
education for high-cost residency programs under Medicare; and 
(8) whether and to what extent the needs of the U.S. regarding 
the supply of physicians would change during the 10-year period 
beginning on October 1, 1995, and whether and to what extent 
any such changes would have significant financial effects on 
teaching hospitals.
    The Committee emphasizes that the panel should particularly 
address the effects of this legislation on hospitals that serve 
significant numbers of low income patients.
    The advisory panel would be composed of 19 members with 
expertise on matters related to graduate medical education. The 
advisory panel would be required to provide Congress with a 
first interim report (not later than one year after enactment), 
a second interim report (not later than 2 years after 
enactment), and final report (not later than 3 years after 
enactment). The advisory panel would terminate 180 days after 
the date on which the final report was submitted to Congress. 
The bill would authorize appropriations of such sums as may be 
necessary for each of the fiscal years 1996 through 2000.
            Reason for change
    The Committee recognizes that the measures undertaken to 
reform the methods used to reimburse teaching hospitals and 
graduate medical education are only initial steps. The Advisory 
Panel is necessary to assess the effect of this legislation and 
to develop recommendations for longer term solutions to 
financing of the missions of teaching hospitals and graduate 
medical education.
            Effective date
    The provision would be effective upon enactment.

           Subtitle F--Provisions Relating to Medicare Part A

                           part 1. hospitals

Sec. 15501. Reductions in inflation updates for PPS hospitals

            Present law
    Hospitals are paid on the basis of a prospectively fixed 
payment rate for costs associated with each discharge. Each 
hospital's basic payment rate is based on a national 
standardized payment amount, which is higher for hospitals in 
large urban areas than for other hospitals. Each standardized 
payment amount is adjusted by a wage index. Payment also 
depends on the relative cost of the case, based on the DRG to 
which the discharge is assigned. Additional payments are made 
for: extraordinary costs (outliers); indirect costs of medical 
education; and for hospitals serving a disproportionate share 
of low-income patients. Other exceptions and adjustments are 
made.
    PPS payment rates are annually updated using an ``update 
factor.'' The annual update factor applied to increase the 
Federal base payment amounts is determined, in part, by the 
projected increase in the hospital market basket index, which 
measures the costs of goods and services purchased by 
hospitals. Under the Omnibus Budget Reconciliation Act of 1993 
(OBRA 93), the PPS update factor for all PPS hospitals is equal 
to the percentage increase in the market basket minus 2 
percentage points.
            Explanation of provision
    The proposal sets the update factor for FY1996 the market 
basket index (MBI) minus 2.5 percentage points for all 
hospitals in all areas, for FY1997-FY2002 at MBI minus 2.0 
percentage points for all hospitals in all areas, and for 
FY2003 and each subsequent fiscal year equal to the MBI for all 
hospitals in all areas.
            Reason for change
    In the past two years, competition in the private sector, 
together with continuing payment constraints by the Medicare 
and Medicaid programs, have led to a large decline in hospital 
cost growth. In the past year, hospital costs per adjusted 
admission have increased almost 2 percentage points less than 
inflation. Because of previous actions by the Congress, the 
increase in payments under the Medicare prospective payment 
system in the last four years has been greater than the 
increase in hospital costs. Consequently, hospitals on average 
now have a positive margin on Medicare patients. Given these 
trends in cost growth, the updates stipulated in this provision 
should allow hospitals to continue earning positive margins, on 
average, for Medicare patients through 2002.
            Effective date
    The provision would be effective upon enactment.

Sec. 15502. Reductions in disproportionate share payment adjustments

            Present law
    Under PPS, an adjustment is made to the payment to 
hospitals that serve a disproportionate share of low-income 
patients. The DSH adjustment is intended to compensate 
hospitals that treat large proportions of low-income patients. 
The factors considered in determining whether a hospital 
qualifies for a DSH payment adjustment include the number of 
beds, the number of patient days, and the hospital's location. 
A hospital's disproportionate patient percentage is the sum of 
(1) the total number of inpatient days attributable to Federal 
Supplemental Security Income beneficiaries divided by the total 
number of Medicare patient days, and (2) the number of Medicaid 
patient days divided by total patient days, expressed as a 
percentage. A hospital is classified as a DSH under any of the 
following circumstances:
          (1) If its disproportionate patient percentage equals 
        or exceeds:
                  (a) 15 percent for an urban hospital with 100 
                or more beds, or a rural hospital with 500 or 
                more beds (the latter is set by regulation);
                  (b) 30 percent for a rural hospital with more 
                than 100 beds and fewer than 500 beds or is 
                classified as a sole community hospital;
                  (c) 40 percent for an urban hospital with 
                fewer than 100 beds; or
                  (d) 45 percent for a rural hospital with 100 
                or fewer beds, or
          (2) if it is located in an urban area, has 100 or 
        more beds, and can demonstrate that, during its cost 
        reporting period, more than 30 percent of its net 
        inpatient care revenues are derived from State and 
        local government payments for care furnished to 
        indigent payments. (This provision is intended to help 
        hospitals in States that fund care for low-income 
        patients through direct grants rather than expanded 
        Medicaid programs.)
    For a hospital qualifying on the basis of (1)(a) above, if 
its disproportionate patient percentage is greater than 20.2 
percent, the applicable PPS payment adjustment factor is 5.88 
percent plus .825 percent of the difference between 20.2 
percent and the hospital's disproportionate patient percentage. 
If the hospital's disproportionate patient percentage is less 
than 20.2 percent, the applicable payment adjustment factor is 
equal to: 2.5 percent plus 65 percent of the difference between 
15 percent and the hospital's disproportionate patient 
percentage. If the hospital qualifies as a DSH on the basis of 
(1)(b), the payment adjustment factor is determined as follows:
          (a) if the hospital is classified as a rural referral 
        center, the payment adjustment factor is 4 percent plus 
        60 percent of the difference between the hospital's 
        disproportionate patient percentage and 30 percent;
          (b) if the hospital is a SCH, the adjustment factor 
        is 10 percent;
          (c) if the hospital is classified as both a rural 
        referral center and a SCH, the adjustment factor is the 
        greater of 10 percent or 4 percent plus 60 percent of 
        the difference between the hospital's disproportionate 
        patient percentage and 30 percent; and
          (d) if the hospital is not classified as either a SCH 
        or a rural referral center, the payment adjustment 
        factor is 4 percent.
If the hospital qualifies on the basis of (1)(c), the 
adjustment factor is equal to 5 percent. If the hospital 
qualifies on the basis of (1)(d), the adjustment factor is 4 
percent. If the hospital qualifies on the basis of (2) above, 
the payment adjustment factor is 35 percent.
            Explanation of provision
    The proposal would reduce the DSH payment by 20 percent for 
discharges occurring on or after October 1, 1995, and on or 
before September 30, 1996; 25 percent for discharges occurring 
on or after October 1, 1996, and on or before September 30, 
1997; and 30 percent for discharges occurring on or after 
October 1, 1997.
            Reason for change
    Current levels of disproportionate share payment 
adjustments are based on a significant increase in these 
payments made in 1989 and 1990 legislation. The payment 
reductions included here bring payments to the same percentage 
of total prospective payment system payments that were in place 
in the early 1990s. It is expected that hospitals receiving 
disproportionate share payments will, on average, continue to 
receive prospective payment system margins that are well above 
overall hospital averages for those institutions that do not 
receive the adjustment, even with reduced payment levels.
            Effective date
    The provision would be effective upon enactment.

Sec. 15503. Payments for capital-related costs for inpatient hospital 
        services

            Present law
    In FY 1992, Medicare began phasing in prospectively-
determined per case rates for capital-related costs. During the 
10-year transition to a single capital rate, payments will 
reflect both hospital-specific costs and a single Federal 
capital payment rate. During the transition, hospitals are paid 
according to either a fully prospective method or a ``hold 
harmless'' method of payment.
    Capital payment rates are updated annually. For the first 5 
years of the transition to prospectively determined per-case 
rates, historical cost increases were used to increase the 
Federal and hospital-specific rates. Under a budget neutrality 
requirement, per case capital rates were adjusted in the first 
5 years of the transition so that total payments equalled 90 
percent of estimated Medicare-allowed capital costs. In fiscal 
year 1996, the budget neutrality requirement will be lifted. In 
addition, the cost-based updates will be replaced by an 
``update framework'' (developed by HCFA and proposed in the 
June 2, 1995 Federal Register), which will determine payment 
rate growth. This analytical framework is to take into account 
changes in the price of capital and appropriate changes in 
capital requirements resulting from development of new 
technologies and other factors.
    Capital costs for PPS exempt hospitals are reimbursed on a 
reasonable cost basis.
    Medicare's capital-related costs include local property 
taxes and property ``fees'' paid by nonprofit hospitals. The 
hospital-specific component of capital payments is based on a 
hospital's spending in a base year (generally 1990). Hospitals 
that have changed from nonprofit or public to proprietary may 
become subject to property taxes not included in their base. 
This may also occur as a result of changes in State or local 
law.
            Explanation of provision
    The proposal would reduce aggregate payments for PPS and 
PPS-exempt capital payments by 15 percent of the allowable 
amount for FY1996 through FY2002. The capital payment reduction 
would not apply to payments for sole community hospitals or 
rural primary care hospitals (defined in the bill).
    The proposal would provide an adjustment for the amount of 
capital-related tax costs for eligible hospitals for discharges 
occurring after September 30, 1995. Eligible hospitals would be 
facilities that may otherwise receive capital payments, are not 
public hospitals, and incur capital-related tax costs for the 
fiscal year.
    The proposal would also amend the exceptions process under 
PPS for certain capital projects as follows: (1) urban 
hospitals with 100 beds would be eligible without regard to its 
DSH patient percentage or whether it qualifies for capital 
additional payments amounts; (2) the minimum payment level for 
qualifying hospitals would be 85 percent; (3) hospitals would 
be considered to meet the requirement that it completed a 
project involved no later than the end of the hospital's last 
cost reporting period beginning after October 1, 2001, if (i) 
the hospital obtained a certificate of need for the project 
approved by the State or a local planning authority, and (ii) 
by September 1, 1995, the hospital had expended on the project 
at least $750,000 or 10 percent of the estimated cost of the 
project; and (4) the amount of the exception payment made would 
not be reduced by any offsetting amounts.
            Reason for change
    Payments for capital costs were over estimated in setting 
the capital payment rates in 1992. Under a budget neutrality 
requirement, per case capital rates were adjusted in the first 
5 years of the transition so that total payments equalled 90 
percent of estimated Medicare-allowed capital costs. The 90 
percent provision ends in 1996, so despite the overestimates, 
current law would go back to 100 percent payment of what would 
have been paid under cost-based reimbursement.
            Effective date
    The provision would be effective upon enactment.

Sec. 15504. Reduction in adjustment for indirect medical education

    See Subtitle E above.

Sec. 15505. Treatment of PPS-exempt hospitals

            Present law
    Under Medicare, five types of specialty hospitals 
(psychiatric, rehabilitation, long-term care, children's and 
cancer) and two types of distinct-part units in general 
hospitals (psychiatric and rehabilitation) are exempt from PPS. 
They are subject to the payment limitations and incentives 
established in the Tax Equity and Fiscal Responsibility Act of 
1982 (TEFRA). Each provider is paid on the basis of reasonable 
cost subject to a rate of increase ceiling on inpatient 
operating costs. The ceiling is based on a target amount per 
discharge. The target amount for a cost reporting period is 
equal to the hospital's allowable inpatient operating costs 
(excluding capital and medical education costs) per discharge 
in a base year increased by applicable update factors for 
subsequent years. This amount is then multiplied by Medicare 
discharges, to yield the ceiling or upper limit on operating 
costs.
    OBRA 93 provided that the applicable rate of increase 
percentage, or update, would be equal to the MBI minus 1.0 
percent for FY1994-1997.
            Explanation of the provision
    The proposal would extend the target amount updates through 
FY2002.
    The proposal would also provide for rebasing the target 
amount for certain long-term care hospitals for discharges 
occurring on or after October 1, 1995.
    The proposal would also apply to long-term care units of 
hospitals not treated as PPS hospitals for discharges occurring 
on or after September 30, 1995. The provision is intended to 
prevent the Secretary from applying the amendments to 42 CFR 
Section 412.23(c)(3) adopted by the Secretary on September 1, 
1995 to a hospital which was classified as a long term care 
hospital for the cost reporting period ending on or before 
September 30, 1995. Nothing contained in this provision shall 
affect the applicability of 42 U.S.C. Section 1886(d)(1)(B)(iv) 
which requires that long term care hospitals must maintain an 
average length of stay of greater than twenty-five days, to a 
hospital which was classified as a long term care hospital for 
cost reporting period ending on or before September 30, 1995. 
To determine how to best treat such distinct units of hospitals 
for purposes of Medicare's prospective payment system, the 
Committee asked the Medicare Payment Review Commission to make 
recommendations for any necessary revisions to current payment 
methods.
    The proposal would also require that the Secretary submit 
to Congress, by not later than June 1, 1996, a report on the 
advisability and feasibility of providing for payment based on 
a prospective payment system for inpatient services of 
rehabilitation hospitals and units under Medicare.
            Reason for change
    Under current law, concerns have been raised about the 
adequacy of Medicare payments for these hospitals, so the 
Committee required the Secretary and Medicare Payment Review 
Commission to review these methods and make recommendations.
            Effective date
    The provision would be effective upon enactment.

Sec. 15506. Reduction in payments to hospitals for Enrollees' bad debts

            Present law
    Certain hospital and other provider bad debts are 
reimbursed by Medicare on an allowable cost basis. To be 
qualified for reimbursement, the debt must be related to 
covered services and derived from deductible and coinsurance 
amounts left unpaid by Medicare beneficiaries. The provider 
must be able to establish that reasonable collection efforts 
were made and that sound business judgement established that 
there was no likelihood of recovery at any time in the future.
            Explanation of provision
    The proposal would reduce bad debt payments to providers by 
75 percent for cost reporting periods beginning during FY1996; 
60 percent for cost reporting periods beginning during FY1997; 
and 50 percent for subsequent cost reporting periods. The 
reductions in bad debt payments would not apply if the debt is 
attributable to uncollectible deductible and coinsurance 
payments owed by individuals enrolled in a State plan under 
Medicaid or under the new MediGrant program. To avoid any 
unintended consequences from this provision, the Committee 
intends that the Medicare Payment Review Commission will 
conduct a study of payments under the Medicare program for 
hospital bad debt. The study will analyze historic trends in 
such payments and identify hospitals that incur bad debt at 
significantly higher levels than other similar hospitals. Not 
later than one year after the date of the enactment of this 
Act, the Commission will submit to Congress a report that 
includes recommendations for methods to reduce payment under 
the Medicare program for hospital bad debt and to improve debt 
collection by hospitals. The manner in which reductions in 
reimbursement are implemented, beyond those specified in this 
Act for fiscal year 1996, will be based on recommendations of 
the Commission.
            Reason for change
    The payment of hospitals' Medicare-related bad debt is a 
legacy of hospital cost-based reimbursement. Under the current 
prospective payment system, bad debts should be considered a 
cost of doing business.
            Effective date
    The provision would be effective upon enactment.

Sec. 15507. Permanent extension of hemophilia pass-through

            Present law
    Medicare makes additional payments for the costs of 
administering blood clotting factor to Medicare beneficiaries 
with hemophilia admitted for hospital stays where the clotting 
factor was furnished between June 19,1990 and September 
30,1994.
            Explanation of provision
    The proposal would make the payment permanent.
            Reason for change
    Due to increases in the cost of clotting factor resulting 
from the increase in AIDs, in 1989, the Congress changed the 
way Medicare paid for inpatient costs of clotting factor by 
providing an add-on to the PPS payment rates. This change was 
initially limited to 18 months and then subsequently extended 
through fiscal year 1994. Information collected throughout this 
period justifies the separate payment for clotting factor.
            Effective date
    The provision would be effective upon enactment.

Sec. 15508. Conforming amendment to certification of Christian Science 
        providers

            Present law
    Certain services furnished in a Christian Science 
sanatorium are covered under Medicare Part A if the institution 
is operated or listed and certified by the First Church of 
Christ, Scientists, Boston, Mass. Such a sanatorium qualifies 
as both a hospital and as a skilled nursing facility.
            Explanation of provision
    The proposal would expand coverage of Christian Science 
sanatorium to include facilities (both hospitals and skilled 
nursing facilities) certified by the Commission for 
Accreditation of Christian Science Nursing Organizations/
Facilities, Inc.
            Reason for change
    Currently, the First Church of Christ, Scientists cannot 
use its new non-profit organization to certify its sanatoriums 
for Medicare coverage.
            Effective date
    The provision would be effective upon enactment.

Sec. 15511. Sole Community Hospitals

            Present law
    Sole Community Hospitals (SCHs) are facilities located in 
geographically isolated areas and are the sole provider of 
inpatient, acute cure hospital services in a geographic area 
based on distance, travel time, severe weather conditions, and/
or market share. SCHs are paid the greater of what would be 
payable under PPS or a target amount comparable to that for 
PPS-exempt hospitals. Target amounts for SCHs are updated by an 
``applicable percentage increase'' which is specified by 
statute and is generally pegged to the hospital market basket 
index. OBRA 93 provided separate SCH updates of MBI minus 2.2 
percent for FY1995 and MBI minus 2.0 percent for FY1996. For 
FY1997 and thereafter, the update for SCHs is the same as for 
all PPS hospitals.
            Explanation of provision
    The proposal would provide a target amount update of MBI 
minus 1 percentage point for fiscal years 1996-2000; and for 
FY2001 and each subsequent fiscal year, the applicable update 
would be applied.
    The bill would require the Medicare Payment Review 
Commission to conduct a study of the impact of the designation 
of hospitals as SCHs on the delivery of health care services to 
individuals in rural areas, and include an analysis of the 
characteristics of the hospitals so designated. The Commission 
would be required to submit the report to Congress within 12 
months after a majority of Commission members are first 
appointed.
            Reason for change
    Medicare's hospital payment policy has historically 
recognized payment problems related to the unique role of sole 
community hospitals and the Committee requested the Medicare 
Payment Review Commission to study the impact of the 
designation of hospitals as sole community providers on the 
delivery of health care to rural communities.
            Effective date
    The provision would be effective upon enactment.

Sec. 15512. Clarification of Treatment of Essential Access Community 
        Hospital/Rural Primary Care Hospital (EACH/RPCH)

            Present law
    Under the EACH demonstration program up to 7 States may be 
designated by the Secretary to receive grants to develop rural 
health networks consisting of essential access community 
hospitals (EACHs) and rural primary care hospitals (RPCHs). 
Individual hospitals may be designated as EACHs and RPCHs. In 
order to receive designation by a State as an RPCH, a facility 
must meet certain criteria, including a requirement that 
inpatient stays not exceed 72 hours.
            Explanation of provision
    The bill would allow EACHs to continue to receive payments 
under Medicare equal to their reasonable costs, and RPCHs to 
continue to receive Medicare payments for their services, even 
in fiscal years in which the program did not receive 
appropriations.
            Reason for change
    The funding for the EACH/RPCH demonstrations was included 
as part of the recision package. Recognizing the merits of the 
EACH and RPCH programs in providing services to their rural 
communities, the Committee provided authorization for continued 
Medicare reimbursement of the services they provide.
            Effective date
    The provision would be effective upon enactment.

Sec. 15513. Rural emergency access care hospitals (REACHs)

            Present law
    No provision.
            Explanation of provision
    The bill would provide for the establishment of a new 
category of hospitals under Medicare to provide for medical 
screening examinations and treatment for emergency medical 
conditions and active labor for rural facilities that are in 
danger of closing due to low inpatient utilization rates and 
operating losses and whose closing would reduce access to 
emergency services. Such facilities would have to meet specific 
requirements including those relating to appropriate medical 
staffing, referral arrangements, and diagnostic and laboratory 
services. Payment for outpatient services provided by rural 
emergency access care hospitals would be determined according 
to the same method used for rural primary care hospitals. 
Services provided to individuals in REACHs would be provided 
over a continuous period not to exceed 24 hours, except in 
cases where the individual is unable to leave because of 
inclement weather.
            Reason for change
    Rural communities in danger of losing their hospitals 
because they lack the population base to maintain sufficient 
use rates to operate profitably can also be in danger of losing 
their only source of accessible emergency health care. These 
hospitals can be downsized and still provide essential urgent 
and emergency services to local communities.
            Effective date
    The provision would be effective upon enactment.

Sec. 15514. Classification of rural referral centers

            Present law
    Referral centers are paid prospective payments based on the 
applicable urban payment amount rather than the rural payment 
amount, as adjusted by the hospital's area wage index. The 
applicable amount is the ``other urban'' rate (i.e., the rate 
for urban areas with 1 million or fewer people) for all 
referral centers except those (if any) located in MSAs greater 
than 1 million. These centers are defined as:
          (1) rural hospitals having 275 or more beds;
          (2) hospitals having at least 50 percent of their 
        Medicare patients referred from other hospitals or from 
        physicians not on the hospital's staff, at least 60 
        percent of their Medicare patients residing more than 
        25 miles from the hospital, and at least 60 percent of 
        the services furnished to Medicare beneficiaries are 
        furnished to those who live 25 miles or more from the 
        hospital; or
          (3) rural hospitals meeting the following criteria 
        for hospital cost reporting periods beginning on or 
        after October 1, 1985: (a) a case mix index equal to or 
        greater than the median case mix for all urban hospital 
        (the national standard), or the median case mix for 
        urban hospitals located in the same census region, 
        excluding hospitals with approved teaching programs; 
        (b) a minimum of 5,000 discharges, the national 
        discharge criterion (3,000 in the case of osteopathic 
        hospitals), or the median number of discharges in urban 
        hospitals for the region in which the hospital is 
        located; and (c) at least one of the following three 
        criteria: more than 50 percent of the hospital's 
        medical staff are specialists, at least 60 percent of 
        discharges are for inpatients who reside more than 25 
        miles from the hospital, or at least 40 percent of 
        inpatients treated at the hospital have been referred 
        either from physicians not on the hospital's staff or 
        from other hospitals.
    OBRA 93 extended the classification through FY1994 for 
those referral centers classified as of September 30, 1992.
            Explanation of provision
    The bill would prohibit the Medicare Geographic 
Classification Review Board from denying a referral center's 
request for reclassification on the basis of any comparison 
between the average hourly wage of the hospital and the average 
hourly wage of hospitals in the area in which it is located. 
Hospitals would be allowed to submit applications to the Board 
during the 30-day period beginning on the date of enactment 
requesting a change in classification for purposes of 
determining the area wage index applicable to the hospital for 
FY1997, if the hospital would be eligible for such change 
except for its failure to meet the deadline for applications.
    The bill would, beginning in FY1996, extend the referral 
center classification for any hospital classified as a referral 
center for FY1994, and such hospitals would continue to be 
classified as a referral center for each subsequent fiscal 
year.
            Reason for change
    Rural referral centers have difficulty meeting the hospital 
wage ratio that the Medicare Geographic Classification Review 
Board requires to qualify for reclassifying their wage 
adjustments. Moreover, because of changes in Medicare 
administrative policies, some rural referral centers have lost 
their opportunity to apply for reclassification. Lastly, some 
rural referral centers lost their designation because they no 
longer satisfied the original referral center criteria, though 
the new criteria has never been validated as requested by the 
Congress.
            Effective date
    The provision would be effective upon enactment.

Sec. 15515. Floor on area wage index

            Present law
    As part of the methodology for determining prospective 
payments to hospitals under PPS, the Secretary is required to 
adjust a portion of the standardized amounts for area 
differences in hospital wage levels by a factor reflecting the 
relative hospital wage level in the geographic area of the 
hospital compared to the national average hospital wage level.
            Explanation of provision
    For discharges occurring on or after October 1, 1995, the 
area wage index applicable for any hospital which was not 
located in a rural area could not be less than the average of 
the area wage indices applicable to hospitals located in rural 
areas in the State in which the hospital was located. The 
Secretary would be required to make any adjustments in the wage 
index in a budget neutral manner.
            Reason for change
    An anomaly that exists with the way area wage indexes are 
applied has resulted in some urban hospitals being paid less 
than the average rural hospital in their states.
            Effective date
    The provision would be effective upon enactment.

         part 2. payments to skilled nursing facilities (snfs)

Sec. 15521. Payments for routine service costs

            Present law
    SNFs are generally reimbursed on the basis of reasonable 
costs, subject to limits that are applied to per diem routine 
service costs (nursing, room and board, administrative, and 
other overhead). Non-routine, or ancillary services (such as 
therapy and certain equipment), and capital-related costs are 
excluded from the cost limits and are generally paid on the 
basis of reasonable costs.
    Separate per diem limits for routine service costs are 
established for freestanding and hospital-based SNFs by urban 
or rural area. Freestanding SNF cost limits are set at 112 
percent of the average per diem labor-related and nonlabor-
related costs. Hospital-based SNF limits are set at the limit 
for freestanding SNFs, plus 50 percent of the difference 
between the freestanding limits and 112 percent of the average 
per diem routine services costs of hospital-based SNFs. The 
limits are adjusted by the hospital wage index to reflect 
differences in wage levels. The law authorizes the Secretary to 
allow for exceptions to the limits, based on case mix or 
circumstances beyond the control of the facility. The Secretary 
is required to rebase cost limits every 2 years, i.e. to 
develop cost limits using the latest available SNF cost report 
data every 2 years. In the interim the Secretary applies an SNF 
market basket developed by the HCFA to reflect changes in the 
price of goods and services purchased by SNFs.
    SNFs providing less than 1,500 days of care per year to 
Medicare patients in the preceding year have the option of 
being paid a prospective payment rate set at 105 percent of the 
regional mean for all SNFs in the region. The rate covers 
routine and capital-related costs (and not ancillary services) 
and is calculated separately for urban and rural areas, 
adjusted to reflect differences in wage levels. Prospective 
rates cannot exceed the routine service cost limit that would 
be applicable to the facility, adjusted to take into account 
average capital-related costs with respect to the type and 
location of the facility. For low-volume SNFs, the Secretary is 
required to establish, on an annual basis, prospective payments 
that reflect current SNF costs using the most recent data 
available from SNF cost reports. For SNFs receiving 
prospectively determined payment rates, the Secretary may pay 
for ancillary services on a reasonable charge basis, rather 
than on a cost basis, if the Secretary determines that a 
reasonable charge basis provides an equitable level of payment 
and eases the SNF's reporting burden.
            Explanation of provision
    For cost reporting periods beginning in FY 1997, the 
Secretary would be required to redefine routine service costs 
that would be subject to the routine cost limits. These would 
include all items used in the current definition--nursing, room 
and board, administrative, and other overhead--and, in 
addition, all ancillary services (including supplies and 
equipment), with the exception of non-routine services listed 
below.
            Reason for change
    Frequently used items such as surgical dressings and 
incontinence supplies are not included in the room rates, as 
they are with hospitals, and these items have sometimes been 
overbilled or oversupplied.
            Effective date
    The provision would be effective beginning in FY 1997.

Sec. 15522. Incentives for cost effective management of covered non-
        routine services

            Present law
    Currently non-routine ancillary services are generally paid 
on the basis of reasonable costs and are not subject to limits.
            Explanation of provision
    For cost reporting periods beginning in FY 1997, new 
payment limits would be established for non-routine services 
provided to beneficiaries eligible for and receiving SNF care 
under Part A. For these purposes, non-routine services would be 
defined to include therapy services (physical and occupational 
therapy, speech language pathology, and respiratory therapy); 
prescription drugs; complex medical equipment; intravenous 
therapy and solutions (including enteral and parenteral 
nutrients, supplies, and equipment); radiation therapy; and 
diagnostic services, including laboratory, pulmonary, and 
radiology services (including tomography and imaging services).
    The non-routine limit for a stay would be the sum of the 
following two amounts: 50 percent would be the facility-
specific amount for these services; and 50 percent would 
represent the national average amount paid for these services 
for all SNF stays. The facility-specific amount would be 
calculated by summing (1) the average amount of payments made 
to a facility under Part A for non-routine services during a 
stay and (2) the Secretary's best estimate of the average 
amount of payments made under Part B for non-routine services 
furnished to all residents provided SNF care under Part A.
    In establishing base year payments for the new limits, the 
Secretary would be required to use cost reporting periods 
ending September 30, 1994. These base year payments would be 
updated to FY 1997 by the SNF market basket. In subsequent 
years, per stay limits would be updated by the SNF market 
basket minus 2 percentage points. National average payments 
used for determining a facility's per stay limit would be 
calculated separately for freestanding and hospital-based SNFs.
    Separate per stay limits would apply to residents of SNFs 
who require intensive nursing or therapy services. The 
Secretary, after consulting with the Medicare Payment Review 
Commission and SNF experts, would be required to develop and 
publish this separate limit by June 30, 1996, and would be 
required to ensure its budget neutrality. In developing the 
high acuity per stay limit required in this legislation, the 
Secretary shall consider the use of performance measures, such 
as length of stay and discharge rates, to assure the delivery 
of medically necessary high intensity services to patients.
    The Secretary would also be required to rebase facility-
specific amounts for cost reporting periods beginning October 
1, 1999, and every 2 years thereafter. An SNF stay would be 
defined by the number of continuous days a beneficiary spent in 
the facility during a covered spell of illness.
    An aggregate payment limit for non-routine services would 
also be determined annually for each SNF. This would be 
calculated by multiplying the number of SNF stays for which 
payments for these services were made times the blended payment 
limit. This amount would be compared to actual interim payments 
made to the SNF for these services; these payments would be 
based on the facility's reasonable costs of providing these 
services. If total payments for the year were below the SNF's 
payment limit, then the SNF would be allowed to retain 50 
percent of the difference, up to 5 percent of the total amount 
paid to the facility for covered non-routine services. In the 
event that total payments exceeded the SNF's payment limit, the 
Secretary would be required to reduce payments for new stays in 
the next fiscal year at such times and in a manner the 
Secretary considers appropriate.
    SNFs would be required to bill Medicare for all services 
provided to beneficiaries eligible for SNF care, regardless of 
whether the service was provided by the facility, by others 
under arrangements with the facility, or under any other 
contracting or consulting arrangement. For beneficiaries 
residing in SNFs but not eligible for Part A SNF benefits, the 
SNF would again be required to bill for covered Part B 
services. SNFs would be required to maintain records of all 
covered non-routine services furnished beneficiaries.
    Currently, obtaining information from Medicare or a nursing 
home on the services provided to a nursing home resident and 
the costs of that resident's care can be a difficult, sometimes 
nearly impossible task. There is no way for a beneficiary, a 
beneficiary's legal representative, or the executor of a 
beneficiary's estate to routinely access such information. The 
Committee expects that by collecting consolidated data on 
services provided to nursing home residents, Medicare can 
improve the information it provides to beneficiaries, or their 
representatives, on the services provided and prices paid 
during a nursing home stay. It is expected that the Health Care 
Financing Administration will develop a system that will 
routinely provide such information as part of the explanation 
of Medicare benefits (EOMBs) or on the request of persons with 
a right to such information. Moreover, the routine use of such 
information by Medicare contractors should help the contractors 
prevent billing abuses--such as billing excessively for 
rehabilitation therapy services--that have been a recurring 
problem in nursing homes.
    The Secretary could provide for exceptions to the per stay 
limits, so long as additional payments were budget neutral and 
did not exceed 5 percent of aggregate payments to all SNFs for 
covered non-routine services. New SNFs not receiving payments 
for non-routine services in the base year period of FY 1994 
would be subject to the national mean payment limit described 
above. Low-volume SNFs receiving prospective payments would not 
be subject to the new non-routine limits. Before furnishing a 
covered x-ray service to a SNF beneficiary, SNFs would be 
required to consider the appropriateness of portable x-ray 
services, taking into account the cost effectiveness of the 
service and the convenience to the resident.
            Reason for change
    Nursing home expenditures have increased over 35 percent 
per year in recent years and non-routine services--which 
historically have not been subject to cost limits--have been 
the major source of this growth. Moreover, skilled nursing 
homes have not always monitored the services their patients are 
being provided. Because skilled nursing home services can be 
reimbursed through either Medicare part A or part B (depending 
on circumstances) and the skilled nursing home or separate 
providers or suppliers can bill Medicare for reimbursement, not 
even Medicare is in a position to understand the services 
individual nursing home residents are receiving. To encourage 
nursing homes to better monitor their residents' services and 
also to provide Medicare better data on nursing home residents' 
costs to assist the agency in setting future nursing home 
payment rates, the Committee has required skilled nursing homes 
to consolidate and submit bills for all services provided to 
their residents.
            Effective date
    The provision would be effective upon enactment.

Sec. 15523. Payments for routine service costs

            Present law
    OBRA 93 required that there be no changes in SNF cost 
limits (including no adjustments for changes in the wage index 
or updates of data) for cost reporting periods beginning in FY 
1994 and FY 1995, or in prospective payment amounts for low-
volume SNFs during these cost reporting periods. The Secretary 
was also required, when granting or extending exceptions to 
cost limits, to limit any exception to the amount that would 
have been granted if there were no restriction on changes in 
cost limits. OBRA 93 also repealed the requirement that 
additional payments be made to hospital-based SNFs for costs 
attributable to excess overhead allocations, effective for cost 
reporting periods beginning on or after October 1, 1993. 
Payments to proprietary SNFs for return on equity were also 
eliminated, effective for cost reporting periods beginning on 
or after October 1, 1993.
            Explanation of provision
    Beginning in FY 1996, the proposal would permanently extend 
the savings stream, but not the OBRA 93 freeze on SNF cost 
limits, by not allowing for the inflation that occurred during 
the freeze years. The Secretary would accomplish this by 
collecting new historical cost data that would be used for 
rebasing SNF limits, and for the period of the freeze, not 
applying the SNF market basket that is used for inflating the 
cost limits. Low-volume SNFs receiving prospective payments 
would be subject to the permanent extension of the savings 
stream of the freeze.
    Reimbursements for exceptions to routine cost limits in FY 
1997 would be limited to aggregate payments made in FY 1996, 
adjusted for increases in the SNF market basket. In future 
fiscal years, increases in aggregate payments for exceptions to 
the limits would be limited by percentage increases in the SNF 
market basket. The Secretary would be required to provide 
exceptions only to those facilities that make annual 
applications for adjustments.
            Reason for change
    The provision would otherwise expire.
            Effective date
    The provision would be effective upon enactment.

Sec. 15524. Reductions in payment for capital-related costs

            Present law
    Capital-related costs of SNFs are excluded from cost 
limits.
            Explanation of provision
    SNF capital costs would be reduced by 15 percent.
            Reason for change
    The treatment of SNFs is currently not consistent with 
hospitals.
            Effective date
    The provision would be effective upon enactment.

Sec. 15525. Treatment of items and services paid for under part B

            Present law
    Certain covered Part B services provided in SNFs are paid 
the lesser of reasonable costs or charges.
            Explanation of provision
    For services billed at the lesser of costs or charges, 
reasonable costs would be reduced by 5.8 percent from amounts 
currently recognized as reasonable for cost reporting periods 
occurring during fiscal years 1996 through 2002.
            Reason for change
    The treatment of SNFs is not consistent with the treatment 
of outpatient hospital services.
            Effective date
    The provision would be effective upon enactment.

Sec. 15526. Certification of facilities meeting revised nursing home 
        reform standards

            Present law
    OBRA 87 comprehensively revised Medicare and Medicaid 
requirements for nursing homes participating in the programs. 
These provisions, collectively referred to as nursing home 
reform law, are virtually identical in Medicare and Medicaid 
statutes. They have three major parts: (1) requirements that 
nursing homes must meet in order to be certified to participate 
in Medicare and/or Medicaid, including requirements about 
assessments of residents, available services, nurse staffing, 
nurse aide training, and resident rights; (2) provisions 
revising the survey and certification process that State survey 
agencies must use for determining whether nursing homes comply 
with the requirements for participation; and (3) provisions 
that expand the range of sanctions and penalties that States 
and the Secretary of HHS may impose against nursing homes found 
to be out of compliance with the requirements for 
participation.
    The Committee on Commerce has reported legislation 
transforming the Medicaid program into a new MediGrant program 
authorized under Title XXI of the SSA program. The new program 
would replace the OBRA 87 nursing home reform provisions with 
more general requirements for assuring quality care in nursing 
homes.
            Explanation of provision
    The proposal would require that SNFs participating in 
Medicare either be State-certified or meet new federal 
requirements that would replace OBRA 87 reforms. State-
certified facilities would include facilities licensed or 
certified as a SNF by the State in which it is located, or a 
facility which otherwise meets the requirements for nursing 
facilities specified under the Medicaid or new MediGrant 
authorities.
    The Secretary would be required to establish and maintain 
standards in the following areas for SNFs providing Medicare 
covered services: the treatment of resident medical records; 
policies, procedures, and bylaws for operation; quality 
assurance systems; resident assessment procedures, including 
care planning and outcome evaluation; the assurance of a safe 
and adequate physical plant for the facility; qualifications 
for staff sufficient to provide adequate care; and utilization 
review.
    Standards for SNFs would also be required to provide for 
the protection and enforcement of resident rights, including 
rights to exercise the individual's rights as a resident of the 
facility and as a citizen or resident of the U.S.; to receive 
notice of rights and services; to be protected against the 
misuse of resident funds; to be provided privacy and 
confidentiality; to voice grievances; to examine the results of 
State certification program inspections; to refuse to perform 
services for the facility; to be provided privacy in 
communications and to receive mail; to have the facility 
provide immediate access to any resident by any representative 
of the State's certification program, the resident's individual 
physician, the State long-term care ombudsman, and any person 
the resident has designated as a visitor; to retain and use 
personal property; to be free from abuse, including verbal, 
sexual, physical and mental abuse, corporal punishment, and 
involuntary seclusion; and to be provided with prior written 
notice of a pending transfer or discharge.
    Standards established by the Secretary for SNFs could take 
effect only after public notice and an opportunity for comment.
    The Secretary would also be required to provide for the 
establishment and operation of a program for the certification 
of SNFs that meet specified standards as well as the 
decertification of those facilities that fail to meet the 
standards. The Secretary would be required to ensure public 
access (as defined by the Secretary) to the certification 
program's evaluations of participating facilities, including 
compliance records and enforcement actions and other reports 
regarding ownership, compliance histories, and services 
provided by certified facilities. The Secretary would be 
required to audit expenditures under the program, not less 
often than every 4 years, through an entity designated by the 
Secretary and not affiliated with the program.
    The Secretary would be required to impose certain sanctions 
against SNFs not meeting minimum federal requirements 
regardless of state certification. If the Secretary determines 
that a certified facility no longer substantially meets the 
requirements for participation and further determines that the 
facility's deficiencies immediately jeopardize the health and 
safety of residents, then the Secretary would be required, at a 
minimum, to terminate the facility's certification for 
participation. If the facility's deficiencies do not 
immediately jeopardize the health and safety of residents, the 
Secretary could, in lieu of termination, provide lesser 
sanctions, including denial of payment for persons admitted 
after a specified date.
    The Secretary could not impose sanctions until a facility 
has had a reasonable opportunity to correct its deficiencies, 
following the initial determination that it no longer 
substantially meets the requirements for certification, and, 
has been given reasonable notice and opportunity for a hearing. 
The Secretary's decision to deny payment for new admissions 
would be effective only after notice to the public and the 
facility, as may be provided for by the Secretary. Denial of 
payment for new admissions would end when the Secretary finds 
that the facility is in substantial compliance (or is making 
good faith efforts to achieve substantial compliance). 
Facilities would, however, be required to be in compliance by 
the end of the eleventh month following the month when the 
decision to deny payments becomes effective. If facilities did 
not substantially meet the requirements by that time, the 
Secretary would be required to terminate their certification 
for participation.
            Reason for change
    The MediGrant program will transfer to the states principal 
responsibility for establishing and enforcing nursing home 
standards.
            Effective date
    The provision would be effective upon enactment.

Sec. 15527. Medical review process

            Present law
    No Provision.
            Explanation of provision
    The Secretary would be required to implement a medical 
review process to examine the effects of the amendments of this 
part on the quality of care received by Medicare beneficiaries, 
placing a particular emphasis on the quality of non-routine 
covered services.
            Reason for change
    The changes adopted to the SNF reimbursement system can 
create perverse incentives to under provide non-routine 
services. For this reason, the Committee requires the Secretary 
to implement a medical review process to assure that 
beneficiaries continue to receive appropriate levels of 
service.
            Effective date
    The provision would be effective upon enactment.

Sec. 15528. Report by medicare payment review commission

            Present law
    The Prospective Payment Assessment Commission has been 
authorized to review and make recommendations on prospective 
payment for SNF care.
            Explanation of provision
    The Medicare Payment Review Commission would be required to 
report on Medicare's method for paying for SNF care and would 
be required to include in the report: (1) an analysis of the 
effect of the new payment limits for non-routine services on 
payments for and the quality of SNF services (2) an analysis of 
the advisability of determining the amount of payment for 
covered non-routine services on the basis of amounts paid for 
such services under Part B of the program; (3) an analysis of 
the desirability of maintaining separate limits for hospital-
based and freestanding SNFs; (4) an analysis of the quality of 
services furnished by SNFs; and (5) an analysis of the adequacy 
of the process and standards used for exceptions to routine 
cost limits.
            Reason for change
    The reforms in the SNF payment method under this 
legislation represent a first step toward broader based reform, 
so further analysis is essential to assure the Committee's 
objectives are met.
            Effective date
    The provision would be effective upon enactment.

Sec. 15529. Effective date

            Explanation of provision
    The provisions would be effective for services furnished 
during cost reporting periods beginning on or after October 1, 
1996.

           Subtitle G--Provisions Relating to Medicare Part B

                        Part 1. Payment Reforms

Sec. 15601. Payments for physicians services

            Present law
    Payments for physicians' services are made on the basis of 
a fee schedule. The fee schedule assigns relative values to 
services based on the time, skill, and intensity it takes 
physicians to provide them. The relative values are adjusted 
for geographic variations in the costs of practicing medicine. 
The adjusted relative values are converted into a dollar 
payment amount by a conversion factor. There are three 
conversion factors: one for surgical services, one for primary 
care services, and one for all other services. The 1995 
conversion factors are $39.45 for surgical services, $36.38 for 
primary care services, and $34.62 for other services.
    Conversion factors are updated each year by a default 
formula. The update equals inflation as measured by the 
Medicare Economic Index (MEI), plus or minus the difference 
between actual physician spending for the category of services 
in a base period compared to the Medicare Volume Performance 
Standard (MVPS) for that category for the period. (If spending 
was below the MVPS, the update is larger than the MEI; if 
spending exceeded the MVPS, the update is less than the MEI).
    The MVPS is a goal for the rate of expenditure growth from 
one fiscal year to the next. The calculation of the MVPS for a 
year is based on estimates of several factors (changes in fees, 
enrollment, volume and intensity, and laws and regulations). 
The MVPS derived from the calculation is subject to a reduction 
which is known as the performance standard factor. The 
performance standard factor is four percentage points for FY 
1995 and subsequent years.
            Explanation of provision
    The provision would replace the MVPS with a sustainable 
growth rate beginning for FY 1996. The provision would 
establish the sustainable growth rate for FY 1996 based on: (i) 
changes in the MEI, (ii) changes in Medicare enrollment 
(excluding Medicare Plus and HMO enrollees), (iii) growth in 
the real gross domestic product from FY 95 to FY 96 plus 2 
percentage points; and (iv) changes resulting from changes in 
law (determined without taking into account changes in volume 
or intensity or changes resulting from changes in the 
calculation of the conversion factor update). For each 
subsequent fiscal year beginning in 1997, the sustainable 
growth rate would equal the previous year's rate, updated by 
the same factors used to set the FY 96 rate.
    The provision would provide for the establishment of a 
single conversion factor, rather than three conversion factors, 
effective January 1, 1996. It would set the factor for 1996 at 
$34.60 and modify the calculation of the update beginning in 
1997. The provision would specify that the update for a year 
would equal the MEI, subject to an adjustment to match the 
cumulative sustainable growth rate. Specifically, the update 
for a year would equal the MEI, plus or minus the difference 
between the percentage increase in actual physician spending 
for the 12-month period ending the previous June compared to 
the allowable growth rate for the year. The allowable growth 
rate would be based on the cumulative sustainable growth rate 
from the base year 1995. If spending was below the cumulative 
sustainable growth rate, the update would be larger than the 
MEI; if spending exceeded the cumulative sustainable growth 
rate, the update would be less than the MEI. However, the 
adjustment to the update would be limited to no more than three 
percentage points larger than the MEI, and no more than seven 
percentage points lower than the MEI.
    The provision would require the Secretary to submit to 
Congress by November 1 of each year, beginning in 1996, a 
report describing the update in the conversion factor for the 
following year. The Medicare Review Commission would review the 
report and submit to Congress by December 1 a report containing 
an analysis of the conversion factor.
            Reason for change
    The PPRC has raised serious concerns with the current 
system for updating physicians' fees. It has continually warned 
that flaws in the default formulas prevent the MVPS process 
from working as intended and in the 1995 Annual Report to 
Congress, the PPRC also provided an overview of the potential 
negative consequences of not changing the MVPS system.
    Since 1990, the PPRC has recommended that the performance 
standard formula be linked to projected growth of real gross 
domestic product (GDP) per capita instead of a five-year 
historical trend less an arbitrary deduction. Projected GDP 
growth is suggested because it represents the economy's 
capacity to grow. This recommendation provides a more realistic 
and affordable goal that links the budget targets to the 
economy as a whole. The PPRC has also recommended that 
estimates of GDP growth be increased by an additional 2 
percentage points to allow for higher rates of growth due to 
advancements in medical technologies.
    In addition, the PPRC has strongly recommended moving to a 
single performance standard and update. Currently, separate 
updates and performance standards are set for each of the three 
categories of physicians' services: primary care, surgical, and 
other nonsurgical services. Because different updates are 
determined for each of the separate categories, relative value 
units in different categories are not paid the same amount. As 
a result, relative value units have become seriously distorted. 
This distortion violates the basic principle underlying the 
resource-based relative value scale (RBRVS), namely that each 
relative value unit should be worth the same amount regardless 
of the patient or service to which it is attached. Continuing 
to set three updates under the current default formulas for 
1996 would exacerbate the distortion of relative payments and 
penalize primary care services.
    In addition to the PPRC recommendations, the Committee 
received testimony from many physician groups supporting reform 
of the process for updating physicians fees. Each of these 
groups support the move to a single conversion factor and a 
more predictable rate of growth in payment for physicians' 
services. Adoption of these policies will eliminate the 
distortions that have resulted from the use of three separate 
performance standards and place a greater emphasis on the use 
of primary care verses surgical services.
    The reforms will provide for more sustainable and 
reasonable growth which is not tied to past performance, but 
rather to more predictable changes in the economy and the 
advancement in medical technologies. The reforms will also 
remove the current distortions to the fee schedule by setting a 
single limit and update for all services applied to a single 
conversion factor.
            Effective date
    The provision would establish a single conversion factor 
effective January 1, 1996 and modify the calculation of the 
update beginning in 1997.

Sec. 15602. Elimination of formula-driven overpayment for certain 
        outpatient hospital services

            Present law
    Medicare payments for hospital outpatient ambulatory 
surgery, radiology, and other diagnostic services equals the 
lesser of: (1) the lower of a hospital's reasonable costs or 
its customary charges, net of deductible and coinsurance 
amounts, or (2) a blended amount comprised of a cost portion 
and a charge portion, net of beneficiary cost-sharing. The cost 
portion of the blend is based on the lower of the hospital's 
costs or charges, net of beneficiary cost sharing, and the 
charge portion is based, in part, on ambulatory surgery center 
payment rates, net of beneficiary coinsurance.
    A hospital may bill a beneficiary for the coinsurance 
amount owed for the outpatient service provided. The 
beneficiary coinsurance is based on 20 percent of the 
hospital's submitted charges for the outpatient service, 
whereas Medicare usually pays based on the blend of the 
hospital's costs and the amount paid to ambulatory surgery 
centers for the same service. This results in an anomaly 
whereby the amount a beneficiary pays in coinsurance does not 
equal 20 percent of the program's payment and does not result 
in a dollar-for-dollar decrease in Medicare program payments.
            Explanation of provision
    The provision would require that beneficiary coinsurance 
amounts be deducted later in the reimbursement calculation for 
hospital outpatient services, so that Medicare payments for 
covered services would be lower. Medicare's payment for 
hospital outpatient services would equal the blended amount 
less any amount the hospital may charge the beneficiary as 
coinsurance for services furnished during portions of cost 
reporting periods occurring on or after October 1, 1995.
            Reason for change
    Because of the anomaly in the formula for determining 
Medicare payments for services provided in hospital outpatient 
departments, the program does not recognize the reduction in 
payment associated with the actual amount of a beneficiary's 
copayment.
            Effective date
    The amendments made by this section shall apply to services 
furnished during portions of cost reporting periods occurring 
on or after October 1, 1995.

Sec. 15603. Reduction in updates to payment amounts for durable medical 
        equipment (DME)

            Present law
    DME is reimbursed on the basis of a fee schedule. Items are 
classified into five groups for purposes of determining the fee 
schedules and making payments: (1) inexpensive or other 
routinely purchased equipment (defined as items costing less 
than $150 or which is purchased at least 75 percent of the 
time); (2) items requiring frequent and substantial servicing; 
(3) customized items; (4) oxygen and oxygen equipment; and (5) 
other items referred to as capped rental items. In general, the 
fee schedules establish national payment limits for DME. The 
national limits have floors and ceilings. The floor is equal to 
85 percent of the weighted median of local payment amounts and 
the ceiling is equal to 100 percent of the weighted median of 
local payment amounts. Fee schedule amounts are updated 
annually by the consumer price index for all urban consumers, 
CPI-U. OBRA 93 changed the basis for the floors and ceiling for 
the DME fee schedules from the weighted average to the weighted 
median, effective January 1, 1994.
    Prosthetics and orthotics are reimbursed on the basis of a 
fee schedule. Items covered by this fee schedule include leg, 
arm, and neck braces, artificial limbs and eyes, and items that 
replace all or part of an internal body organ. The fee schedule 
establishes regional payment limits for covered items. The 
regional limits have floors and ceilings. The floor is equal to 
90 percent of the weighted average of local payment amounts and 
the ceiling is equal to 120 percent of the weighted average of 
local payment amounts. Fee schedule amounts are updated 
annually by CPI-U. OBRA 93 eliminated updates for prosthetics 
and orthotics for 1994 and 1995.
            Explanation of provision
    The provision would eliminate updates to the DME fee 
schedules for the period 1996 through 2002. The provision would 
also reduce in 1996 the national payment limit for oxygen and 
oxygen equipment by 20 percent.
    The update for prosthetics and orthotics would be limited 
to 1 percent for each of years 1996 through 2002.
    The Committee directs the Secretary to conduct a study on 
the extent to which telemarketing or other types of unsolicited 
approaches are used for the sale of durable medical equipment 
and supplies. The Secretary is to determine whether these types 
of marketing activities lead to increased instances of fraud 
and abuse.
            Reason for change
    In August 1995, the GAO released a report finding that 
despite improvements in the payment for DME, unwarranted 
expenditures persist.
            Effective date
    The amendments are effective upon enactment.

Sec. 15604. Reduction in updates to payment amounts for clinical 
        laboratory services

            Present law
    Medicare pays for clinical laboratory services on the basis 
of area wide fee schedules which are periodically updated. 
There is no update for 1994 and 1995. In addition, the law 
establishes a ceiling on payment amounts. In 1995, this ceiling 
is set at 80 percent of the median of all fee schedules for the 
test; in 1996 and subsequent years the ceiling is set at 76 
percent of the national median. No beneficiary cost-sharing is 
required.
            Explanation of provision
    The provision would provide for no update in the fee 
schedules through 2002. In addition, the provision would lower 
the ceiling on payment amounts to 65 percent of the median, 
effective January 1, 1997.
            Reason for change
    The provision would contribute toward slowing the rate of 
growth in the Part B program.
            Effective date
    The amendment is effective upon enactment.

Sec. 15605. Extension of reductions in payments for costs of hospital 
        outpatient services

            Present law
    Hospitals receive payments for Medicare's share of capital 
costs associated with outpatient departments. OBRA 93 extended 
a 10 percent reduction in payments for the capital costs of 
outpatient departments through FY 1998.
    Certain hospital outpatient services are paid on the basis 
of reasonable costs. OBRA 93 extended a 5.8 percent reduction 
for those services paid on a cost-related basis through FY 
1998.
            Explanation of provision
    The proposal would extend the 10 percent reduction in 
payments for outpatient capital through FY 2002. The 5.8 
percent reduction for outpatient services paid on a cost basis 
would be extended through FY 2002.
            Reason for change
    The provision would otherwise expire.
            Effective date
    The provision is effective upon enactment.

Sec. 15606. Freeze in payments for ambulatory surgical center services

            Present law
    Medicare pays for ambulatory surgical center (ASC) services 
on the basis of prospectively determined rates. These rates are 
updated annually by CPI-U. OBRA 93 eliminated updates for ASCs 
for FY 1994 and FY 1995.
            Explanation of provision
    The proposal would eliminate the inflation update for ASCs 
for each of the fiscal years 1996 through 2002.
            Reason for change
    The provision would otherwise expire.
            Effective date
    The provision is effective upon enactment.

Sec. 15607. Rural emergency access care hospitals.

            Present law
    See Subtitle F, Sec. 15513 above.
            Explanation of provision
    The provision would make conforming amendments to Part B.
            Reason for change
    See Subtitle F, Sec. 15513 above
            Effective date
    The provision is effective upon enactment.

                         Part 2. Part B Premium

Sec. 15611. Extension of part B premium

            Present law
    When Medicare was established in 1965, the Part B monthly 
premium was set at a level to finance one-half of Part B 
program costs. Beginning in 1974, however, Congress limited the 
percentage increase in the premium to the same percentage by 
which Social Security cash benefits were adjusted for changes 
in cost of living (i.e. cost-of-living adjustments or COLAs). 
Under this formula, revenues from premiums soon dropped from 50 
percent to below 25 percent of program costs. This was because 
Part B program costs increased much faster than inflation as 
measured by the Consumer Price Index on which the Social 
Security COLA is based.
    Since the early 1980s, Congress has regularly voted to set 
Part B premiums at a level to cover 25 percent of program 
costs, in effect overriding the COLA limitation. The 25 percent 
provision first became effective January 1, 1984. General 
revenues cover the remaining 75 percent of Part B program 
costs. Congress took this general approach again in the Omnibus 
Budget Reconciliation Act of 1990 (OBRA 90), but instead of 
leaving the calculations to the Secretary, the law set specific 
premium amounts for each year, 1991-1995, based on estimates of 
the program's costs. For 1995, the Part B premium is set at 
$46.10 per month. Part B program cost estimates have since 
proven to be too large, and the 1995 premium is now projected 
to cover approximately 31.5 percent of program costs. Most 
recently, OBRA 93 extended the policy of setting the Part B 
premium at a level to cover 25 percent of program costs through 
1998, leaving the calculations to the Secretary. Under current 
law, the provision limiting the annual percentage increase to 
the percentage increase in the social security COLA would again 
apply, beginning in 1999.
            Explanation of provision
    The provision would permanently set the Part B premium at 
31.5 percent of program costs, beginning in 1996.
            Reason for change
    The Committee was committed to not changing Part B 
premiums, or coinsurance levels from those in place in 1995. 
The Part B premium would remain at the 1995 level. Over the 
last 15 years the Congress has acted on numerous occasions to 
set the Part B premium at a given level of program costs 
without allowing it to return to annual increases in the 
premium based on the Social Security cost of living adjustment.
            Effective date
    The provision is effective upon enactment.

Sec. 15612. Income-related reduction in Medicare subsidy

            Present law
    Under current law, all beneficiaries, regardless of income 
pay the same Part B premium which covers a portion of the costs 
for providing Part B benefits. Participation by eligible 
individuals in Part B is voluntary, and individuals can elect 
not to enroll in the program. Those who elect to enroll must 
pay the premium. The Part B premium is not currently adjusted 
based on beneficiary affluence. The primary method of 
collection for the premium is a direct deduction from 
beneficiaries' social security benefits, railroad retirement 
benefits, and civil service annuities. The premium constitutes 
about 31.5% of Part B program costs, with the balance of the 
actuarial value of a given beneficiaries benefits being 
subsidized by general revenues. All Part B premiums are 
dedicated to the SMI trust fund.
            Explanation of provision
    Under the provision, individuals with incomes over $75,000 
and couples with incomes over $125,000 would be responsible for 
increases in the Part B premium. The Federal subsidy would be 
gradually phased out. Individuals with incomes at $100,000, 
couples (with one spouse enrolled in Part B) with incomes at 
$150,000, and couples (with both spouses enrolled in Part B) 
with incomes at $175,000 would be required to pay a premium 
equal to 100 percent of Part B program costs. The provision 
would apply to monthly Part B premiums beginning in 1996, which 
as under current law is still voluntary on the part of the 
elderly.
    The Secretary of Health and Human Services would be 
required to make an initial determination of the amount of an 
individual's actual adjusted gross income (AGI) for a year. The 
determination would be based on information supplied by the 
Secretary of the Treasury. Not later than October 1 of the 
preceding year, the Secretary would be required to notify each 
individual subject to an increased premium. The notice would 
include the Secretary's estimate of the individual's AGI for 
the year. The individual would have a 30-day period (beginning 
with the date on which the notice is provided) to provide 
information on the individual's anticipated AGI for the 
forthcoming year.
    The Secretary would be required to make a premium 
adjustment if he or she determined (based on information 
provided by the Secretary of the Treasury) that actual AGI was 
different from the amount initially determined. The adjustment 
would be made to the subsequent year's premium to adjust for 
any overpayment or underpayment in the previous year. The 
Secretary would be authorized to make appropriate recovery 
efforts in the case of an individual who owed an additional 
amount, but was not enrolled in Part B in such subsequent year. 
The Secretary is also authorized, in the case of a deceased 
individual, to make a payment to the surviving spouse, or an 
individual's estate, in the case of overpayment to the program.
            Reason for change
    Concerns have been raised regarding the level of subsidy 
that affluent Medicare beneficiaries are receiving under the 
current, voluntary Part B program, and the fact that young, 
less well-to-do Americans are significantly subsidizing the 
Medicare costs for the affluent.
            Effective date
    The provision would apply to monthly Part B premiums 
beginning in 1996.

             Part 3. Administration of Laboratory Services

Sec. 15621. Administrative simplification

            Present law
    No provision.
            Explanation of provision
    The section would require the Secretary to adopt uniform 
coverage, administration and payment policies for clinical 
diagnostic laboratory tests within one year of enactment. The 
Secretary would be required to select 15 carrier medical 
directors to develop recommendations to the Secretary for 
uniform coverage, administration, and payment policies. The 
directors would be representative of geographic areas and have 
a varied range of interest in relevant fields, including 
pathology and clinical laboratory practice. The directors would 
be required to consult with independent experts in each major 
discipline of clinical laboratory medicine (including clinical 
laboratory personnel, bioanalysts, pathologists, and practicing 
physicians). The medical directors would also solicit comments 
from others wishing to participate. The provision would provide 
that the process would be conducted as negotiated rule-making 
as provided under the Administrative Procedures Act.
    The section would provide that the negotiated rule-making 
would result in recommendations for uniform policies in the 
following areas: (i) beneficiary information required to be 
submitted with each claim; (ii) physicians' obligations 
regarding documentation and record keeping; (iii) procedures 
for filing claims and providing remittances by electronic 
media; (iv) performance of post-payment review of test claims; 
(v) documentation of medical necessity limited to instances 
where determined appropriate after identification of aberrant 
utilization pattern through focused medical review; and (vi) 
beneficiary responsibility for payment.
    The section would prohibit carriers and intermediaries from 
implementing any new requirements for submission of claims 
retroactive to January 1, 1995, during the period when the 
Secretary is adopting uniform policies. Further, carriers would 
be prohibited from issuing new coverage, administration, or 
payment policies unless they promote the goal of administrative 
simplification.
    The provision would require medical directors to forward 
their recommendations to the Secretary within six months of 
enactment. The Secretary would provide for publication of 
recommendations for public comment using negotiated rule-
making. The Secretary would publish final uniform policies 
which would become effective 180 days following publication. 
Following publication, the Secretary would implement uniform 
documentation and processing policies.
    The provision would permit any independent laboratory to 
select one carrier for processing all of its claims for payment 
regardless of where the laboratory, patient, or provider 
resides or conducts business. The election would be made by the 
laboratory, and an agreement between the carrier and the 
laboratory would be forwarded to the Secretary. No laboratory 
would be required to select a single carrier.
            Reason for change
    Concerns have been raised about the widely varying 
documentation required by Medicare carriers regarding claims 
for clinical laboratory tests, and the resulting significant 
administrative costs associated with this documentation, 
particularly for laboratories which send claims to multiple 
carriers.
            Effective date
    The provision is effective upon enactment.

                 Part 4. Coverage of Anti-Nausea Drugs

Sec. 15631. Coverage of certain anti-nausea drugs under 
        chemotherapeutic regimen

            Present law
    Medicare Part B covers oral anti-cancer drugs that are 
prescribed as anti-cancer chemotherapeutic agents providing 
they have the same active ingredients and are used for the same 
indications as anti-cancer chemotherapeutic agents which would 
be covered if they were not self-administered and they were 
furnished incident to a physician's service as drugs and 
biologicals. In addition, unlabeled uses for FDA approved drugs 
and biologicals used in an anti-cancer chemotherapeutic regimen 
for a medically accepted indication are also covered. These 
provisions apply only to the coverage of anti-cancer 
chemotherapeutic agents used in the treatment of cancer. It 
does not apply to oral drugs or biologicals used to treat 
indications other than cancer, toxicity, or side effects such 
as nausea or bone marrow depression.
            Explanation of provision
    The section would clarify Medicare coverage of oral anti-
cancer drugs to specify that coverage is also provided for 
oral-anti-emetic drugs given at the time that chemotherapy 
treatments are administered.
            Reason for change
    In certain cases, HCFA does not adopt new FDA approved 
pharmaceuticals for coverage even when they meet all of the 
criteria necessary under current law.
            Effective date
    The provision is effective upon enactment.

               Part 5. Coverage of Chiropractic Services

Sec. 15641. Coverage of chiropractic services

            Present law
    Medicare recognizes chiropractors under the term physician 
if the chiropractor is licensed as such by the State (or in a 
State which does not license chiropractors as such, is legally 
authorized to perform the services of a chiropractor in the 
jurisdiction in which he performs such services), and who meet 
uniform minimum standards promulgated by the Secretary, but 
only with respect to treatment by means of manual manipulation 
of the spine (to correct a subluxation demonstrated by X-ray to 
exist) which he is legally authorized to perform in the State 
or jurisdiction in which the treatment is provided.
            Explanation of provision
    The section would clarify that chiropractors may order and 
refer patients to other practitioners for the purpose of 
providing X-rays.
            Reason for change
    Under current law concerns have been raised regarding 
access to chiropractic services because chiropractors have been 
unable to directly refer patients for X-rays. As a result 
chiropractors are severely limited in their ability to treat 
patients because they have no direct role in obtaining the x-
ray which is required for the beneficiary to qualify for 
certain chiropractic services.
            Effective date
    The provision is effective upon enactment.

       Subtitle H--Provisions Relating to Medicare Parts A and B

                      Part 1. Home Health Services

Sec. 15701. Payment for home health services

            Present law
    In provisions contained in the Orphan Drug Act of 1993, 
OBRA 87 and OBRA 90, Congress required the Secretary to develop 
alternative methods for paying for home health care on a 
prospective basis. In 1994, the Office of Research and 
Demonstration in the HCFA completed a demonstration project 
that tested prospective payment on a per visit basis. 
Preliminary analysis indicates that the per visit prospective 
payment methodology had no effect on cost per visit or volume 
of visits. HCFA has just begun a second project, referred to as 
Phase II, to test prospective payment on a per episode basis.
            Explanation of provision
    The proposal would establish a prospective payment system 
for home health services. This system would be based on 
prospectively determined per visit rates that are subject to 
per episode limits applied in the aggregate. The proposal would 
have the following specific components.
    Beginning in FY 1997, the Secretary would be required to 
establish national average per visit rates for each of the home 
health service disciplines covered under Medicare--skilled 
nursing care, physical therapy, speech pathology, occupational 
therapy, medical social services, and home health aide 
services. The per visit rates would be based on amounts paid 
during cost reporting periods ending June 30, 1994, updated by 
the home health market basket for fiscal years 1995 through 
1997. The home health market basket is currently used to update 
cost limits. To reflect regional differences in the costs of 
providing services, the labor-related portion of the per visit 
rates would be adjusted by the hospital wage index. These 
adjusted per visit rates would be the amounts that home health 
care agencies would receive throughout the year for each of the 
particular mix of visits provided to a given home health care 
beneficiary.
    Per visit rates would be subject to a per episode limit. 
The Secretary would calculate separate per episode limits for 
each of 18 different case categories of home health care. These 
18 categories would be the same as those being used in HCFA's 
Phase II demonstration (or an alternative methodology developed 
by the Secretary), and would serve as a substitute for a true 
case-mix adjustment not yet available. The per episode limit 
for a category would cover all care provided to a beneficiary 
during a period of 120 days. No new episode of care would be 
recognized for reimbursement purposes until after a beneficiary 
has been discharged for a period of 60 days.
    The per episode limit would be calculated as follows. For 
each of the 18 case categories, the Secretary would determine 
the mean number of visits of each type of home health services 
furnished during a period of 120 days following the initial 
admission of the beneficiary to the case during the base year 
FY 1994. The Secretary would then multiply the results by the 
per visit payment rates for services. This would become the 
target per episode limit for a case. Calculation of per episode 
limits would be done on an area-wide basis; for these purposes 
the area in which an agency is located would be that area the 
Secretary finds most appropriate.
    Each agency would be paid per visit payments throughout the 
year. At the end of the year, an agency's aggregate limit would 
be calculated by first multiplying the Secretary's regional 
target per episode limit for each of the 18 case categories 
times the number of episodes admitted by an agency to each of 
the 18 categories. The sum of these products becomes the agency 
aggregate payment limit. For purposes of calculating agency-
specific per episode limits, 165 days of care per episode would 
be counted.
    Total per visit payments to an agency would be compared 
with the aggregate payment limit, i.e. the mix of an agency's 
episodes times the per episode limits. If total payments for 
the year are below the agency's aggregate payment limit, then 
agencies would be allowed to retain 50 percent of the 
difference, up to 5 percent of an agency's aggregate Medicare 
payments in a year. For agencies with aggregate payments over 
the limit, the Secretary would be required to reduce payments 
to agencies in the following fiscal year in a manner the 
Secretary considers appropriate (including on an installment 
basis).
    If a beneficiary continues to need home health visits after 
a period of 165 days, then an agency may request that 
additional payments be made on a per visit basis. These 
payments would not be subject to the aggregate limit. In order 
for fiscal intermediaries to approve such requests, agencies 
would be required to submit a physician's certification of the 
continuing need for skilled care, as well as the reason for the 
need and a description of services to be furnished during the 
visits.
    Beginning in FY 1998, per visit payment rates would be 
updated annually by the home health market basket. The 
Secretary would be required to rebase the market basket update 
at least once every 5 years with the most recent available 
data. Beginning in FY 1999, the Secretary would also be 
required to rebase the per episode limits every 2 years to 
adjust for changes in the number and mix of visits per episode. 
To deal with case-mix ``creep,'' the Secretary would also be 
required to adjust per episode limits to assure that aggregate 
case-mix, at the area-wide level, remains budget neutral.
    The Secretary would be required to implement a medical 
review process for the new payment system, giving particular 
attention to fiscal years 1997 and 1998. The purpose of the 
medical review process would be to assess patterns of care to 
assure that beneficiaries receive appropriate services per 
episode. Medical reviews would be required to focus on short 
stay cases and cases over 165 days. Recertification of the need 
for care would have to done at 30, 60, 120, and 165 days of 
home health care.
    The Secretary would be required make adjustments in 
payments to home health care agencies that circumvent the new 
payment system by discharging patients to another home health 
agency or similar provider; altering corporate structure or 
name to avoid being subject to payment limits or for purposes 
of increasing Medicare payments; and undertaking any other 
actions that are unnecessary for effective patient care and 
that are intended to maximize Medicare payments.
    The Secretary would be required to develop a system to 
track home health patients who receive care from more than one 
agency during an episode. For such situations, the Secretary 
would be required to adjust payments to assure that total 
amounts paid to these agencies do not exceed the payment that 
would otherwise have been made if the patient had completed the 
episode in a single agency.
    The Secretary would also be required to develop a system to 
adjust payments to agencies to eliminate any increase in growth 
in the percentage of low-cost episodes over the percentage of 
such cases occurring at the agency for the 12-month cost 
reporting period ending June 30, 1994. The Secretary would be 
required to define low-cost episode in a manner to assure that 
a home health agency has an incentive to be cost efficient in 
delivering services and that the volume of services does not 
increase as a result of factors other than patient needs.
    Reimbursements for exceptions to the home health services 
cost limits would be limited to aggregate payments made in FY 
1994 adjusted for increases in the home health market basket.
    Separate Part B billings would be prohibited for any 
services covered under the per episode limit while the 
beneficiary is receiving home health services. Agencies would 
be required to bill prosthetics and orthotics furnished as part 
of a home health visit under Part B's prosthetics and orthotics 
fee schedule, just as DME furnished by an agency as part of 
home health must now be billed under the fee schedules for DME.
    The Medicare Review Commission would be required to report 
on the effectiveness of the new payment system for each of the 
first three years of its operation. The Commission would also 
be required to make recommendations to Congress on (1) case-mix 
and volume increases, (2) quality monitoring of home health 
agency practices, (3) whether a capitated payment system for 
home health care patients using over 165 days of service is 
warranted; (4) whether public providers of service are 
adequately reimbursed; (5) the adequacy of the exemptions and 
exceptions to the limits; (6) the appropriateness of methods 
used to adjust the per episode limits and annual payment 
updates to reflect changes in the mix of services, number of 
visits, and assignment to case categories to reflect changing 
patterns of home health care; and (7) the geographic areas used 
to determine per episode limits.
            Reason for change
    Over the past five years Medicare spending for home health 
services has grown an average of almost 40 percent a year. 
Medicare's current cost based reimbursement approach encourages 
agencies to increase the number of visits. It also fails to 
reward agencies for improving their efficiency.
            Effective date
    The provision would be effective October 1, 1986.

Sec. 15702. Maintaining savings resulting from temporary freeze on 
        payment increase for home health services

            Present law
    Home health care agencies are currently reimbursed on the 
basis of reasonable costs, up to specified limits. Cost limits 
are determined separately for each type of covered home health 
service (skilled nursing care, physical therapy, speech 
pathology, occupational therapy, medical social services, and 
home health aide), and according to whether an agency is 
located in an urban or rural area. Costs limits, however, are 
applied to aggregate agency expenditures; that is, an aggregate 
cost limit is set for each agency that equals the limit for 
each type of service multiplied by the number of visits of each 
type provided by the agency. Limits for the individual services 
are set at 112 percent of the mean labor-related and nonlabor 
per visit costs for freestanding agencies. Cost limits are 
updated annually by applying a market basket index to base year 
data derived from home health agency cost reports. The labor-
related portion of a service limit is adjusted by the current 
hospital wage index.
    OBRA 93 required that there be no changes in home health 
cost limits (including no adjustments for changes in the wage 
index or other updates of data) for cost reporting periods 
beginning on or after July 1, 1994, and before July 1, 1996. 
The Secretary was also required, when granting or extending 
exceptions to cost limits, to limit any exception to the amount 
that would have been granted if there were no restriction on 
changes in the cost limits. OBRA 93 also repealed the 
requirement that additional payments be made to hospital-based 
home health agencies for costs attributable to excess overhead 
allocations, effective for cost reporting periods beginning on 
or after October 1, 1993.
            Explanation of provision
    The provision would permanently extend the savings stream, 
but not the freeze, in setting future home health limits, by 
not allowing for the inflation that occurred during the freeze 
years.
            Reason for change
    The provision would otherwise expire.
            Effective date
    The provision would be effective upon enactment.

Sec. 15703. Extension of waiver of presumption of lack of knowledge of 
        exclusion from coverage for home health agencies

            Present law
    When a provider furnishes services that are not covered 
under Medicare, the provider is not normally entitled to 
Medicare payment for those services. The program, however, has 
recognized that circumstances may exist where providers of 
services or beneficiaries could not have reasonably known that 
services would not be covered. Medicare has paid for a limited 
number of services which are not covered services, so long as 
it is determined that the provider or beneficiary did not know 
and could not reasonably have been expected to know that 
services would be uncovered. The provider is presumed not to 
know that coverage for certain services would be denied--it 
qualifies for a ``favorable presumption''--when its denial rate 
is below a certain level. With this favorable presumption, its 
liability for denied claims below the threshold is waived and 
it is paid for these claims. The provider receives waiver of 
liability protection for denied claims below the threshold.
    For home health agencies, waiver of liability protection is 
available for two separate categories of denials. One waiver 
applies to medical denials, i.e., to claims that are denied 
because the care was not medically necessary or was determined 
to be custodial in nature. Another waiver applies to services 
determined to be non-covered because the beneficiary was not 
homebound or did not require intermittent skilled nursing care. 
These are referred to as technical denials.
    For both categories, the principal criterion for meeting 
the favorable presumption test is a denial rate of 2.5 percent 
or less. Waiver of liability protection for both medical and 
technical denials expires December 31, 1995.
            Explanation of provision
    Waiver of liability for home health agencies would be 
extended through September 30, 1996.
            Reason for change
    Current waiver of liability protections are a legacy of the 
current cost-based home health care reimbursement system, and 
they were extended only until the new home health agency 
prospective payment becomes effective in fiscal year 1997.
            Effective date
    The provision would be effective upon enactment.

Sec. 15704. Study of coverage of services of Christian Science 
        providers

            Present law
    No provision.
            Explanation of provision
    The section would require the Secretary of Health and Human 
Services to conduct a study of the feasibility and desirability 
of providing Medicare coverage for home health services 
furnished by Christian Science providers which meet applicable 
requirements of the First Church of Christ, Scientist, Boston. 
The Secretary would be required to submit a report on the study 
by July 1, 1996, and to include recommendations on criteria for 
certifying providers and an appropriate payment methodology for 
reimbursing covered services.
            Reason for change
    Though Christian Scientists are eligible for Part A 
benefits, Christian Science home health agencies are not 
certified to provide Medicare covered services.
            Effective date
    This provision would be effective upon enactment.

             part 2. medicare secondary payer improvements

Sec. 15711. Extension and expansion of existing requirements

            Present law
    Generally Medicare is the ``primary payer,'' that is, it 
pays health claims first, with an individual's private or other 
public insurance filling in some or all of Medicare's coverage 
gaps. However, in certain instances, the individual's other 
coverage pays first, while Medicare is the secondary payer. 
This phenomenon is referred to as the MSP program. A group 
health plan offered by an employer (with 20 or more employees 
is required to offer workers age 65 or over (and workers 
spouses age 65 or over) the same group health insurance 
coverage as is offered to younger workers. If the worker 
accepts the coverage, the employer is the primary payer, with 
Medicare becoming the secondary payer.
    Similarly, a group health plan offered by a large employer 
(100 or more employees) is the primary payer for employees or 
their dependents who are on the Medicare disability program. 
The provision applies only to persons covered under the group 
plan because the employee is in ``current employment status'' 
(i.e. is an employee or is treated as an employee by the 
employer). The MSP provision for the disabled population 
expires October 1, 1998.
    The MSP provisions apply to ESRD beneficiaries with 
employer group health plans, regardless of employer size. The 
group health plan is the primary payer for 18 months for 
persons who become eligible for Medicare ESRD benefits. The 
employer's role as primary payer is limited to a maximum of 21 
months (18 months plus the usual 3-month waiting period for 
Medicare ESRD coverage). The MSP provisions for the ESRD 
population expire October 1, 1998.
    The law authorizes a data match program which is intended 
to identify potential secondary payer situations. Medicare 
beneficiaries are matched against data contained in the SSA and 
Internal Revenue Service (IRS) files to identify cases in which 
a working beneficiary (or working spouse) may have employer-
based health insurance coverage. Cases of previous incorrect 
Medicare payments are identified and recoveries are attempted. 
The authority for the program extends through Sept. 30, 1998.
            Explanation of provision
    The provision would make permanent the MSP provisions for 
the disabled and the ESRD population. It would extend the 
period during which the employer group health plan is primary 
payer for an ESRD beneficiary from 18 to 24 months. The 
provision would also make permanent the data match requirement.
            Reason for change
    The provisions would otherwise expire.
            Effective date
    The provision is effective upon enactment.

Sec. 15712. Improvements in recovery of payments

            Present law
    Recent court action may lessen the effectiveness of the 
data match program. In many cases where recoveries are sought, 
claims have never been filed with the primary payer. 
Identification of potential recoveries under the data match 
process usually takes in excess of the time period most health 
plans allow for claims filing. Two May 1994 decisions by the 
U.S. Court of Appeals for the District of Columbia held certain 
portions of the MSP overpayment recovery procedures invalid. In 
particular, it held invalid provisions authorizing payment 
recoveries without regard to a health plan's timeliness 
requirements. The U.S. Supreme Court denied a HCFA petition to 
review the 1994 decisions.
            Explanation of provision
    The provision would specifically permit MSP recoveries from 
third party administrators of health plans, except in cases of 
insolvency or bankruptcy of the employer or plan.. It would 
also permit recovery actions up to three years from the date 
the item or service was furnished to the beneficiary.
            Reason for change
    The recent court decisions have reduced the effectiveness 
of the MSP recovery efforts.
            Effective date
    The amendment is effective upon enactment.

Sec. 15713. Prohibiting retroactive application of policy regarding 
        ESRD beneficiaries enrolled in primary plans

            Present law
    Medicare remains the primary payer if a group health plan 
was already secondary for an individual entitled on the basis 
of age or disability when the individual becomes entitled on 
the basis of ESRD. Following enactment of OBRA 93, HCFA stated 
that the private plan would become primary in such cases. On 
April 24, 1995, HCFA corrected its construction of the statute; 
it issued guidelines stating that Medicare remains the primary 
payer in these cases.
            Explanation of provision
    The provision would specify that the policy change 
specified in the April 24, 1995 HCFA guidelines would only 
apply with respect to items and services furnished on or after 
such date.
            Reason for change
    The administrative costs associated with HCFA's reversal of 
it's policy interpretation have created a significant burden on 
ESRD providers.
            Effective date
    The provision is effective upon enactment.

                            part 3. failsafe

Sec. 15714. Failsafe budget mechanism

            Present law
    Although the Federal Government is required by law to pay 
Medicare claims on behalf of eligible participants, total 
Medicare spending is limited in two ways: (1) by availability 
of reserves in the Medicare trust funds; and (2) by provisions 
of OBRA of 1990, P.L. 101-508. These limitations are intended 
to set ongoing aggregate limits on spending, not to regulate 
the annual rate of growth in Medicare.
    Limitation created by trust fund reserves. Part A claims 
for hospitalization are paid from the HI Trust Fund. Part B 
claims for physicians' services are paid from the SMI Trust 
Fund. These two trust funds are accounting devices by which the 
Government determines the extent to which spending on Medicare 
claims is authorized without new legislation or appropriations. 
Trust fund balances represent spending authority. An insolvency 
in either fund would force a stoppage in Government 
reimbursement for Medicare claims until the fund had accrued 
new credits.
    The sources of trust fund credits are: (1) payroll tax 
revenue; (2) enrollee premiums; (3) Government general fund 
contributions; and (4) interest on Government debt held by the 
funds. The earmarked revenue for the HI fund comes from a 
payroll tax of 1.45 percent applicable to both employees and 
employers. The SMI fund is credited with monthly premium 
payments made by Part B enrollees (currently $46.10 a month) 
and transfers of general Government funds. The HI fund is 
projected to be depleted in FY 2002. The SMI fund will not be 
depleted, however, since general fund transfers are credited 
each year in amounts sufficient to maintain the fund's 
solvency.
    Limitation created by OBRA of 1990. A provision in OBRA of 
1990 requires that legislated increases in entitlement spending 
and decreases in revenue be offset by entitlement decreases 
and/or revenue increases on a pay-as-you-go (PAYGO) basis. A 
violation of PAYGO rules can trigger sequestration, a process 
by which all budget accounts subject to sequestration are 
reduced by the percentage necessary to make up any spending 
overrun or revenue shortfall. However, the law limits the 
sequestration percentage that can be applied to Medicare 
benefits to 4.0 percent or less. These budget rules apply 
through FY 1998.
    Sequestration has not occurred because of a PAYGO 
violation, but OBRA of 1990 restricted increases in certain 
Medicare payment rates beginning in FY 1991 as part of the 
budget agreement set forth by that law. Sequestration did occur 
in FY 1988 under an earlier law, the Balanced Budget and 
Emergency Deficit Control Reaffirmation Act of 1987 (P.L. 100-
119). The sequestration percentage applied to Medicare spending 
was 2.0 percent, the maximum allowed for Medicare under that 
law. It was achieved by reducing payment rates for covered 
services.
            Explanation of provision
    A new section 1895 would be added to Title XVIII of the SSA 
to provide a mechanism by which certain Medicare spending would 
be reduced automatically if it were anticipated that spending 
would exceed budget targets during the next fiscal year. This 
``failsafe budget mechanism'' would be in effect for fiscal 
years beginning with 1998.
    The failsafe budget mechanism would apply to both Parts A 
and B of Medicare, but only to fee-for-service expenditures. 
Distinct limits would be specified for the following fee-for-
service sectors: inpatient hospital services; home health 
services; extended care services; hospice care; physicians' 
services; outpatient hospital services and ambulatory facility 
services; durable medical equipment and supplies; diagnostic 
tests; and other items and services. The Secretary of Health 
and Human Services would classify each item and service paid 
for separately by Medicare into one of these sectors. No 
substantive reclassifications would be permitted after the 
classification was published.
    If the Secretary determines that expenditures for a sector 
for a fiscal year would exceed the sector's budget allotment 
for that year, then Medicare payment rates applicable to that 
sector would be adjusted so that expenditures would be reduced 
by 133\1/3\ percent of the amount of the excess. The Secretary 
would be required to publish the size of any necessary 
adjustments and the methodology to be used by May 15 preceding 
the fiscal year in question. A final determination on 
adjustments would have to be published by September 1 prior to 
that fiscal year.
    The budget allotment for a sector for a fiscal year would 
be determined by multiplying the total fee-for-service 
allotment for that year by an allotment proportion specified by 
sector and year in the new law. The total allotment for a year 
would equal the Medicare benefit budget less the payments the 
Secretary estimates would be made under MedicarePlus (a new 
Part C of Medicare). The Medicare benefit budget would be set 
forth in law as follows:

                        [In billions of dollars]          Benefit budget
Fiscal year:
    1997.......................................................... 203.1
    1998.......................................................... 214.3
    1999.......................................................... 227.2
    2000.......................................................... 241.0
    2001.......................................................... 259.1
    2002.......................................................... 280.0

    The benefit budget for a subsequent fiscal year would equal 
the benefit budget for the preceding fiscal year increased by 
the product of: (1) 1.05; and (2) 1.0 plus the annual 
percentage increase in the average number of Medicare 
beneficiaries in the subsequent fiscal year compared to the 
preceding fiscal year.
    A sector's allotment of the benefit budget would equal the 
ratio of the baseline projection of expenditures for the sector 
in a year to the sum of all such baseline expenditures for all 
sectors in that year. Baseline projections would be determined 
by applying annual growth rates for each sector, as specified 
in the new law, to the prior year's baseline expenditure for a 
sector. For example, the baseline expenditure projection for 
inpatient hospital services would be determined by applying to 
the prior-year expenditure the following growth rates: 5.7 
percent for FY 1996; 5.6 percent for FY 1997; 6.0 percent for 
FY 1998; 6.1 percent for FY 1999; 5.7 percent for FY 2000; 5.5 
percent for FY 2001; and 5.2 percent for FY 2002 and 
thereafter. If a sector's expenditures were to fall below the 
baseline allotment, the unspent balance available within that 
allotment would be reallocated proportionately to the 
allotments for the other sectors.
    In providing for adjustments to Medicare payments for a 
particular sector, the Secretary would be required to take into 
account the impact of the adjustment on the volume or type of 
services provided in that sector and any delays in payments 
from one year to the next that might be expected in that 
sector.
    Beginning with the budget documents for FY 1999, the 
President's Budget would be required to include information on 
actual Medicare fee-for-service expenditures by sector for the 
second preceding year, with a comparison to the corresponding 
Medicare benefit budget and sector allotments. Data on actual 
annual growth rates for each fee-for-service sector would also 
be required.
    If the actual fee-for-service expenditures for a sector 
were to exceed the total allotments for the second preceding 
year, then the sector's allotment would be reduced for the next 
fiscal year by 133\1/3\ percent the excess amount. Should 
spending in the second preceding year fall below a sector's 
allotment for that year, the excess allotment could be added to 
the allotment for the next fiscal year. These adjustments would 
be made after adjusting the prior-year allotments to reflect 
actual Part C expenditures for the second preceding year.
    If the President submits a legislative proposal to revise 
the baseline annual growth rates specified for fee-for-service 
sectors, Congress would be required to consider the proposal 
under an expedited procedure. Passage of a joint resolution of 
approval would be required within 60 days of submittal for the 
changes to become law. Procedure for consideration of a joint 
resolution would be the same as that used under the Defense 
Base Closure and Realignment Act of 1990.
    Annual reports of the Trustees on Part A of Medicare would 
be required to include information on the annual rate of 
program expenditures that would maintain the solvency of the 
trust fund and the extent to which the failsafe budget 
mechanism restrained the expenditure growth rate.
    Beginning in 1997, the Medicare Payment Review Commission 
would be required to submit by March 1 of each year a report 
analyzing the past operation of the failsafe mechanism and 
making recommendations with respect to its application to the 
following fiscal year.
    The Committee directs the Commission, in evaluating the 
appropriateness of the implementation of the fail safe, to 
separately look at the effect of such reductions, if necessary, 
on urban critical access hospitals.
             Reason for change
    The Committee is confident that a significant proportion of 
Medicare beneficiaries will choose MedicarePlus, and produce 
the growth levels in program costs necessary to preserve 
Medicare. However, if the combination of the expansion of 
MedicarePlus and the specific payment policies set forth in 
H.R. 2425 are not sufficient to bring Medicare into fiscal 
balance, then further adjustments in payment policy would be 
necessary to ensure that Medicare spending will not exceed the 
sustainable levels set by the Committee.
            Effective date
    The provision is effective upon enactment.

                 Part 4. Administrative Simplification

Sec. 15731. Standards for Medicare information transactions and data 
        elements

            Present law
    No provision.
            Explanation of provision
    The provision would provide for the adoption of standards 
for Medicare information transactions and data elements. The 
Secretary would be required to adopt standards which were 
consistent with reducing administrative costs and which were 
developed or modified by a standard setting organization 
accredited by the American National Standards Institute. The 
Secretary could adopt or modify a standard relating to data 
elements that was different from such standard if, compared to 
the alternative, it would substantially reduce administrative 
costs to providers and health plans and it was promulgated in 
accordance with Federal rule making procedures.
    The provision would require each person who maintains or 
transmits Medicare information or data elements to maintain 
reasonable and appropriate administrative, technical, and 
physical safeguards to: (i) ensure integrity and 
confidentiality of information; and (ii) protect against any 
reasonably anticipated threats or hazards to security or 
unauthorized uses or disclosures.
    The Secretary would be required to establish security 
standards and modifications to those standards that take into 
account technical capability of record systems, costs of 
security measures, need for training personnel who have access 
to information, and the value of audit trails. The standards 
would assure that a medicare information network service that 
was part of a larger organization had policies which isolated 
its activities. Security standards would be based on those 
developed by standard setting organizations or, if such 
standards do not exist, by the Medicare Information Advisory 
Committee.
    The Secretary would be required to adopt standards for 
transactions and data elements to make Medicare information 
uniformly available to be exchanged electronically. The 
standards would provide for unique health identifiers for each 
individual, plan, employer, and provider. Penalties would be 
imposed for improper disclosure of this number. In addition, 
the Secretary would: (i) provide for the establishment of code 
sets in consultation with the Medicare Information Advisory 
Committee and other experts; (ii) promulgate regulations 
specifying procedures for the electronic transmission and 
authentication of signatures; (iii) develop rules for transfer 
of information between health plans needed for coordination of 
benefits; and (iv) develop further transaction standards if, 
after 5 years, they were deemed necessary for coordination of 
benefits. The provision would provide for protection of trade 
secrets.
    The provision would require the development of the 
standards within 18 months of enactment. Additional or modified 
standards could be adopted not more than once every 12 months. 
Additions or modifications would be completed in a manner that 
minimized disruption and cost of compliance. Health plans would 
be required to conduct standard transactions in a timely manner 
and comply with transaction and data element standards within 
24 months of adoption. Compliance with any modified standards 
would be required within an appropriate period but not less 
than 180 days after adoption of the modified standard. 
Penalties would be established for failure to comply with 
requirements and standards.
    The provision would supersede any contrary provision of 
state law unless: (i) the state law provision is more stringent 
with respect to privacy guarantees; or (ii) it is a provision 
the Secretary deems necessary to prevent fraud and abuse.
    The provision would establish a Medicare Information 
Advisory Committee to advise the Secretary in development of 
standards and to advise the Secretary and the Congress on the 
status and future of the Medicare information network. The 
Committee would be composed of 9 members--three appointed by 
the President, three appointed by the Speaker of the House, and 
three by the President pro tempore of the Senate. The Committee 
would be required to submit an annual report to the Congress 
which would include information on the extent to which entities 
using the Medicare information network were meeting the 
standards, forming an integrated network, and meeting security 
standards.
            Reason for change
    The MedicarePlus program will significantly expand the role 
of private insurance under the Medicare program. As this 
expansion occurs the need for information on beneficiary 
eligibility, enrollment, disenrollment, plan design, and 
coordination of benefits will increase dramatically. This 
provision provides a process through which the determination of 
information needs and the standards to be used in transmitting 
this information will be developed to ensure uniformity.
            Effective date
    The provision is effective upon enactment.

           Part 5. Other provision relating to parts A and B

Sec. 15741. Clarification of Medicare coverage of items and services 
        associated with certain medical devices approved for 
        investigational use

            Present law
    Medicare law does not provide an all-inclusive list of 
specific items, services, treatments, procedures, or 
technologies covered by the program. The law, however, provides 
that no payment may be made for any expenses which are not 
reasonable and necessary for the diagnosis or treatment of 
illness. While HCFA has not explicitly defined ``reasonable'' 
and ``necessary'' for purposes of making decisions about the 
appropriateness of Medicare's coverage for specific services 
and items, it has applied a general policy that services be 
safe and effective and not experimental or investigational. In 
1994, HCFA clarified its coverage policy to prohibit coverage 
and payment of services associated with the use of 
investigational devices.
            Explanation of provision
    The proposal specifies that nothing in Medicare law could 
be construed as prohibiting coverage of items and services 
associated with the use of a medical device in the furnishing 
of inpatient or outpatient hospital services (including 
outpatient diagnostic imaging services) on the grounds that the 
device is not an approved device if (1) the device is an 
investigational device; and (2) the device is used instead of 
an approved device or a covered procedure. The amount of 
payment for items and services associated with the use of 
investigational devices in inpatient or outpatient hospital 
services could not exceed the amount that Medicare would have 
paid if the item or service were associated with an approved 
device. The provision would define approved device as a medical 
device which has been approved for marketing under pre-market 
approval or cleared for marketing under the Federal Food, Drug, 
and Cosmetic Act. An investigational device would be defined as 
a device approved for investigational use under the Food, Drug, 
and Cosmetic Act, or an investigational combination product 
under the Food, Drug, and Cosmetic Act.
    The Committee is aware of the strong interest in requiring 
Medicare reimbursement of patient care provided in peer 
reviewed clinical trials approved by the National Institutes of 
Health (NIH), the FDA, or non-governmental entities meeting NIH 
guidelines. The Committee is further aware that clinical trials 
provide the best medical treatment for people suffering from 
cancer, AIDS, or other life threatening disease, for whom 
standard therapies offer limited chance for survival or 
enhanced quality of life.
    The Committee directs the Medicare Payment Review 
Commission to assess whether or not there would be additional 
cost to the Medicare program if reimbursement was made for the 
services beneficiaries receive when participating in approved 
clinical trials.
            Reason for change
    Until recently, it had been HCFA's practice to pay for 
services including investigational devices.
            Effective date
    The provision is effective upon enactment.

Sec. 15742. Additional exclusion from coverage

            Present law
    Medicare excludes coverage for certain defined items and 
services.
            Explanation of provision
    The provision would exclude Medicare coverage for items or 
services used for the purpose of causing, or assisting in 
causing, the death, suicide, euthanasia, or mercy killing of a 
person.
            Reason for change
    Concerns have been raised that Medicare funds will be used 
for purposes of assisting in causing the death, suicide, 
euthanasia, or mercy killing of a person.
            Effective date
    The provision is effective upon enactment.

                   Subtitle I--Clinical Laboratories

    (The provisions under this subtitle are under the 
jurisdiction of the Committee on Commerce.)

Sec. 15801. Exemption of physicians office laboratories

            Present law
    The Clinical Laboratory Improvement Amendments of 1988 
(CLIA 88) significantly strengthened Federal regulation of 
laboratories and expanded Federal oversight to virtually all 
laboratories in the country, including physicians office 
laboratories. All laboratories are required to register with 
DHHS. Laboratories performing only simple tests receive a 
certificate of waiver. Other laboratories (performing moderate 
complexity and/or high complexity testing) must meet 
performance standards issued by the Secretary.
    A special category of tests, physician performed microscopy 
procedures, was established in 1993. This category was expanded 
and renamed provider-performed microscopy procedures earlier 
this year. These are specified procedures which are personally 
performed by physicians, dentists, and certain mid-level 
personnel; the procedures must be performed on specimens 
derived from their patients as part of a physical examination 
and evaluation. The tests are labelled moderate complexity; 
however physicians (or other personnel) performing only these 
tests and waivered tests are not subject to routine 
inspections, though most other moderate complexity requirements 
continue to apply.
            Explanation of provision
    The provision would exempt a clinical laboratory in a 
physician's office from the CLIA requirements. Exempted 
laboratories would be those in the office of a physician 
(including an office of a group of physicians) which is 
directed by a physician. The examinations and procedures must 
be performed by a physician or by individuals supervised by a 
physician solely as an adjunct to other services provided by 
the physician's office.
    A clinical office laboratory would not be exempt from CLIA 
when it performed Papanicolaou (PAP) Smears.
            Reason for change
    This provision is under the jurisdiction of the Committee 
on Commerce.

Subtitle J--Lock-Box Provisions for Medicare Part B Savings from Growth 
                               Reductions

Sec. 15901. Establishment of Medicare growth reduction trust fund for 
        part B savings.

            Present law
    There is no provision under current law.
            Explanation of provision
    The section establishes a Medicare Preservation Trust Fund. 
All Part B savings attributable to the Medicare Preservation 
Act of 1995 would be appropriated to this fund. No transfer 
would be permitted from the fund for the purpose of offsetting 
any change to the Internal Revenue Code. Beginning with FY 
2003, the Secretary could use this fund for the Medicare 
program, but only to the extent provided by Congress in advance 
through specific amendment.
            Reason for change
    Creation of a separate Medicare Preservation Trust Fund 
would ensure that, as a matter of law, none of the savings from 
the reductions in the rate of growth of Medicare Part B can be 
used for any other purpose. This insures that Medicare savings 
are not to be divided among other parts of the budget; it 
preserves the integrity of Medicare by keeping the reforms of 
the Medicare program within Medicare Part B.
    The SMI trust fund is not a closed trust fund as is the 
Hospital Insurance Trust Fund. SMI receives a significant in-
flow of general revenue. This new provision would create a 
separate trust fund to prevent any out-flow of savings into the 
general fund.
            Effective date
    The provision is effective upon enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 2(1)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statements 
are made concerning the votes of the Committee on Ways and 
Means in its consideration of the bill H.R. 2425.

                       Motion to Report the Bill

    The bill, H.R. 2425, as amended, was ordered favorably 
reported by a roll call vote of 22 yeas and 14 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........   Mr. Gibbons.....  ........        X   .........
 Mr. Crane.....................        X   ........  .........   Mr. Rangel......  ........        X   .........
 Mr. Thomas....................        X   ........  .........   Mr. Stark.......  ........        X   .........
 Mr. Shaw......................        X   ........  .........   Mr. Jacobs......  ........        X   .........
 Mrs. Johnson..................        X   ........  .........   Mr. Ford........  ........        X   .........
 Mr. Bunning...................        X   ........  .........   Mr. Matsui......  ........        X   .........
 Mr. Houghton..................        X   ........  .........   Mrs. Kennelly...  ........  ........  .........
 Mr. Herger....................        X   ........  .........   Mr. Coyne.......  ........        X   .........
 Mr. McCrery...................        X   ........  .........   Mr. Levin.......  ........        X   .........
 Mr. Hancock...................        X   ........  .........   Mr. Cardin......  ........        X   .........
 Mr. Camp......................        X   ........  .........   Mr. McDermott...  ........        X   .........
 Mr. Ramstad...................        X   ........  .........   Mr. Kleczka.....  ........        X   .........
 Mr. Zimmer....................        X   ........  .........   Mr. Lewis.......  ........        X   .........
 Mr. Nussle....................        X   ........  .........   Mr. Payne.......  ........        X   .........
 Mr. Johnson...................        X   ........  .........   Mr. Neal........  ........        X   .........
 Ms. Dunn......................        X                                                                        
 Mr. Collins...................        X                                                                        
 Mr. Portman...................        X                                                                        
 Mr. Laughlin..................        X                                                                        
 Mr. English...................        X                                                                        
 Mr. Ensign....................        X                                                                        
 Mr. Christensen...............        X                                                                        
----------------------------------------------------------------------------------------------------------------

                     Motion on Chairman's Amendment

     The Committee approved Chairman Archer's amendment, as 
amended, in the nature of a substitute to H.R. 2425 by a roll 
call vote of 22 yeas and 14 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................        X   ........  .........   Mr. Gibbons.....  ........        X   .........
 Mr. Crane.....................        X   ........  .........   Mr. Rangel......  ........        X   .........
 Mr. Thomas....................        X   ........  .........   Mr. Stark.......  ........        X   .........
 Mr. Shaw......................        X   ........  .........   Mr. Jacobs......  ........        X   .........
 Mrs. Johnson..................        X   ........  .........   Mr. Ford........  ........        X   .........
 Mr. Bunning...................        X   ........  .........   Mr. Matsui......  ........        X   .........
 Mr. Houghton..................        X   ........  .........   Mrs. Kennelly...  ........  ........  .........
 Mr. Herger....................        X   ........  .........   Mr. Coyne.......  ........        X   .........
 Mr. McCrery...................        X   ........  .........   Mr. Levin.......  ........        X   .........
 Mr. Hancock...................        X   ........  .........   Mr. Cardin......  ........        X   .........
 Mr. Camp......................        X   ........  .........   Mr. McDermott...  ........        X   .........
 Mr. Ramstad...................        X   ........  .........   Mr. Kleczka.....  ........        X   .........
 Mr. Zimmer....................        X   ........  .........   Mr. Lewis.......  ........        X   .........
 Mr. Nussle....................        X   ........  .........   Mr. Payne.......  ........        X   .........
 Mr. Johnson...................        X   ........  .........   Mr. Neal........  ........        X   .........
 Ms. Dunn......................        X                                                                        
 Mr. Collins...................        X                                                                        
 Mr. Portman...................        X                                                                        
 Mr. Laughlin..................        X                                                                        
 Mr. English...................        X                                                                        
 Mr. Ensign....................        X                                                                        
 Mr. Christensen...............        X                                                                        
----------------------------------------------------------------------------------------------------------------

                          Votes on Amendments

    Roll call votes were conducted on the following amendments 
to the Chairman's substitute markup amendment.
    An amendment by Mr. Cardin to Subtitle G to replace the 
proposed seven-year freeze on updates in lab services and the 
reduction in the payment cap with a one-year freeze on the 
update was defeated by a roll call vote of 9 yeas to 22 nays, 
with one Member voting present. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........  ........  ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......  ........        X   .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........  ........  ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........  ........         X   Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........        X                                                              
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................  ........        X                                                              
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Levin to Subtitle G to replace the 
seven-year freeze on payments for durable medical equipment 
with a one-year freeze was defeated by a roll call vote of 9 
yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........  ........  ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......  ........        X   .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........  ........  ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........        X                                                              
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................  ........        X                                                              
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. McDermott to Subtitle H to begin 
payments on a per diem basis for home health care after a 120-
day period of continuous care, as apposed to a 165-day period 
was defeated by a roll call vote of 11 yeas to 21 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........  ........  ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Ford.........  ........  ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........  .................                               
Mr. Collins....................  ........        X   .........  .................                               
Mr. Portman....................  ........        X   .........  .................                               
Mr. Laughlin...................  ........        X   .........  .................                               
Mr. English....................  ........        X   .........  .................                               
Mr. Ensign.....................  ........        X   .........  .................                               
Mr. Christensen................  ........        X   .........  .................                               
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Stark to Subtitle A to provide for a 
series of beneficiary protections in plans which contract with 
Medicare, in Medicare-Select plans, and in MediGap plans was 
defeated by a roll call vote of 13 yeas to 22 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........        X                                                              
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................  ........        X                                                              
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Levin, on behalf of Mrs. Kennelly, to 
Subtitle A to remove the top-down national budget proposal for 
paying Medicare-contracting plans and replace it with current 
law payment policies was defeated by a role call vote of 13 
yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........        X                                                              
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................  ........        X                                                              
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel to Subtitle A to add access to 
centers of excellence was defeated by a roll call vote of 13 
yeas to 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........  ........                                                             
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................  ........        X                                                              
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Kleczka to Subtitle A to allow States 
to require provider-sponsored networks to meet State licensure 
requirements for such networks, if any, was defeated by a roll 
call vote of 7 yeas to 28 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......  ........        X   .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........  ........        X   .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........  ........        X   .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........  ........        X   .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........  ........        X   .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........  ........        X   .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Neal, on behalf of Mrs. Kennelly, to 
Subtitle A to require the Medisave provisions be limited to 
demonstration projects which would test the cost-effectiveness 
of offering Medicare beneficiaries the option of selecting 
high-deductible coverage coupled with a Medical Savings Account 
in lieu of their traditional Medicare benefits was defeated by 
a roll call vote of 13 yeas to 22 nays The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Kleczka to Subtitle A to require 
beneficiaries who choose high-deductible, medical savings 
account coverage to stay in that coverage for five years was 
defeated by a roll call vote of 13 yeas to 22 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Cardin to Subtitle A regarding the 
membership of the Commission on the Effect of the Baby Boom 
Generation on the Medicare program was defeated by a roll call 
vote of 16 yeas to 18 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................        X   ........  .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........  ........  .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................        X   ........  .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................        X   ........  .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Messrs. Stark and Levin to Subtitle B to 
substitute the anti-fraud and abuse provisions to assure 
sufficient funding to the Office of the Inspector General, 
increase current civil monetary penalties, and add new civil 
monetary penalties was defeated by a roll call vote of 12 yeas 
to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Kleczka to Subtitle A to clarify that 
in cases where a beneficiary chooses a MedicarePlus plan in 
which providers may bill beneficiaries directly, the providers 
are subject to same balance-billing limits as under the 
traditional Medicare program was defeated by a roll call vote 
of 13 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel to add a new Subtitle K to allow 
a tax credit for primary health service providers was defeated 
by a roll call vote of 16 yeas to 19 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................        X   ........  .........  Mr. Matsui.......  ........  ........  .........
Mr. Houghton...................        X   ........  .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Messrs. Matsui, Neal, and Cardin to 
Subtitle A to retarget funding for teaching programs and 
disproportionate share hospitals was defeated by a roll call 
vote of 11 yeas to 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........  ........  .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Messrs. Stark and Matsui to require open 
enrollment for Medicare Supplemental Insurance (MediGap) 
policies during the annual, coordinated election period was 
defeated by a roll call vote of 12 yeas to 21 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........  ........  .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Cardin to Subtitle G to provide payment 
for colorectal screening was defeated by a roll call vote of 13 
yeas to 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........  ........  ........  .........
Mr. Bunning....................        X   ........  .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........        X                                                              
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................  ........        X                                                              
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Cardin, on behalf of Mrs. Kennelly, to 
Subtitle G to make available an annual screening mammogram to 
Medicare-eligible women over age 49 without payment of a twenty 
percent co-payment was defeated by a roll call vote of 15 yeas 
to 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................        X   ........  .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........        X                                                              
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................  ........        X                                                              
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Payne to Subtitle G to provide payment 
for diabetes self-management training services and 
authorization for payment for blood-testing strips for 
individuals with diabetes was defeated by a roll call vote of 
15 yeas to 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X                                                              
Mr. Collins....................  ........        X                                                              
Mr. Portman....................  ........        X                                                              
Mr. Laughlin...................  ........        X                                                              
Mr. English....................  ........        X                                                              
Mr. Ensign.....................        X   ........                                                             
Mr. Christensen................  ........        X                                                              
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Matsui, on behalf of Mrs. Kennelly, to 
Subtitle H to allow growth in Medicare spending to equal 
private sector growth was defeated by a roll call vote of 13 
yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives            Yea       Nay     Present    Representatives      Yea       Nay      Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer....................  ........        X   .........  Mr. Gibbons......        X   .........  .........
Mr. Crane.....................  ........        X   .........  Mr. Rangel.......        X   .........  .........
Mr. Thomas....................  ........        X   .........  Mr. Stark........  ........  .........  .........
Mr. Shaw......................  ........        X   .........  Mr. Jacobs.......        X   .........  .........
Mrs. Johnson..................  ........        X   .........  Mr. Ford.........        X   .........  .........
Mr. Bunning...................  ........        X   .........  Mr. Matsui.......        X   .........  .........
Mr. Houghton..................  ........        X   .........  Mrs. Kennelly....  ........  .........  .........
Mr. Herger....................  ........        X   .........  Mr. Coyne........        X   .........  .........
Mr. McCrery...................  ........        X   .........  Mr. Levin........        X   .........  .........
Mr. Hancock...................  ........        X   .........  Mr. Cardin.......        X   .........  .........
Mr. Camp......................  ........        X   .........  Mr. McDermott....        X   .........  .........
Mr. Ramstad...................  ........        X   .........  Mr. Kleczka......        X   .........  .........
Mr. Zimmer....................  ........        X   .........  Mr. Lewis........        X   .........  .........
Mr. Nussle....................  ........        X   .........  Mr. Payne........        X   .........  .........
Mr. Johnson...................  ........        X   .........  Mr. Neal.........        X   .........  .........
Ms. Dunn......................  ........        X   .........                                                   
Mr. Collins...................  ........        X   .........                                                   
Mr. Portman...................  ........        X   .........                                                   
Mr. Laughlin..................  ........        X   .........                                                   
Mr. English...................  ........        X   .........                                                   
Mr. Ensign....................  ........        X   .........                                                   
Mr. Christensen...............  ........        X   .........                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel to Subtitle F to strike the 
provision eliminating the nursing home reform standards was 
defeated by a roll call vote of 15 yeas to 21 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................        X   ........  .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel to Subtitle F to delete the 
reduction in disproportionate share payments was defeated by a 
roll call vote of 14 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel to Subtitle E to allow an 
exemption from the proposed elimination of Medicare payments 
for residency positions filled by non-U.S. citizens for 
hospitals that the Secretary finds to have a high dependency on 
public dollars (Medicare and Medicaid) was defeated by a roll 
call vote of 16 yeas to 19 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................        X   ........  .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................        X   ........  .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment, in the nature of a substitute, by Mr. 
McDermott was defeated by a roll call vote 10 yeas to 25 nays. 
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......  ........        X   .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........  ........        X   .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........  ........        X   .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

    An amendment, in the nature of a substitute, by Mr. Gibbons 
was defeated by a roll call vote of 14 yeas to 22 nays.The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Gibbons......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Jacobs.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Ford.........        X   ........  .........
Mr. Bunning....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mrs. Kennelly....  ........  ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Hancock....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Zimmer.....................  ........        X   .........  Mr. Lewis........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Payne........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Ms. Dunn.......................  ........        X   .........                                                  
Mr. Collins....................  ........        X   .........                                                  
Mr. Portman....................  ........        X   .........                                                  
Mr. Laughlin...................  ........        X   .........                                                  
Mr. English....................  ........        X   .........                                                  
Mr. Ensign.....................  ........        X   .........                                                  
Mr. Christensen................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of this bill, H.R. 2425, 
as reported:
    The Committee accepts the estimate prepared by CBO, which 
is included below. However, the Committee has several concerns 
with the CBO estimates. The first concern regards the CBO 
assumption used regarding the number of Medicare beneficiaries 
which will enroll with MedicarePlus organizations. Given the 
new opportunities and better information Medicare beneficiaries 
will have regarding these options the Committee expects a 
higher number of individuals to elect coverage under 
MedicarePlus plans than is assumed under the CBO estimate. The 
second area of concern is the CBO position that the 
MedicarePlus, Medical Savings Accounts will lead to adverse 
selection. The third area of concern involves the use of an 
extreme behavioral offset for benefits or services in which the 
supplier of the service is not directly responsible for 
ordering the services provided.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 1996-2002.

  ESTIMATED REVENUE EFFECTS OF H.R. 2425, THE ``MEDICARE PRESERVATION ACT OF 1995'' AS PASSED BY THE COMMITTEE ON WAYS AND MEANS ON OCTOBER 11, 1995--  
                                                                 FISCAL YEARS 1996-2002                                                                 
                                                                  [Millions of dollars]                                                                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Provision                  Effective     1996       1997       1998       1999       2000       2001       2002     1996-00    1996-02 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Tax treatment of hospitals which                                                                                                                     
 participate in provider-sponsored                                                                                                                      
 organization.............................        DOE                                                                                                   
(8)Negligible revenue effect                                                                                                                            
2. Tax treatment of Medicare Plus                                                                                                                       
 provisions...............................     1/1/97                                                                                                   
(8) Negligible revenue effect                                                                                                                           
      Net totals..........................  .........                                                                                                   
(8) Negligible revenue effect                                                                                                                           
--------------------------------------------------------------------------------------------------------------------------------------------------------
Joint Committee on Taxation.                                                                                                                            
Note.--Details may not add to totals due to rounding.                                                                                                   

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with clause 2(l)(3)(B) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that the Committee bill results in net decreased budget 
authority for direct spending programs relative to current law 
and no new or increased tax expenditures or revenues.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with subdivision (C) of clause 2(l)(3) of 
rule XI of the Rules of the House of Representative, requiring 
a cost estimate prepared by the Congressional Budget Office, 
the following report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 16, 1995.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2425, the Medicare 
Preservation Act of 1995, as ordered reported by the Committee 
on Ways and Means on October 11, 1995.
    The table shows the budgetary effects of the bill over the 
1996-2002 period. CBO understands that the Committee on the 
Budget will be responsible for interpreting how savings 
contained in this proposal measure against the budget 
resolution reconciliation instructions. The estimate assumes 
that the bill will be enacted by November 15 and could change 
if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                           June E. O'Neill.

                                        H.R. 2425 AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS--BY FISCAL YEAR                                        
                                                                [In billions of dollars]                                                                
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     1996       1997       1998       1999       2000       2001       2002      Total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   Change in Direct Spending:                                                                                                           
                                                                                                                                                        
Subtltle A--MedicarePlus Program \1\............................       -0.5       -1.0       -2.1       -3.7       -6.3       -8.9      -12.1      -34.6
                                                                 =======================================================================================
Subtitle B--Preventing Fraud and Abuse:                                                                                                                 
    Payment Safeguards and Enforcement..........................        0.4       -0.1       -0.3       -0.5       -0.6       -0.6       -0.6       -2.3
    Double Civil Monetary Penalties.............................       -0.0       -0.0       -0.0       -0.0       -0.0       -0.0       -0.1       -0.3
    Other Provisions............................................       -0.0       -0.0       -0.0       -0.0       -0.0       -0.0       -0.0       -0.1
                                                                 ---------------------------------------------------------------------------------------
        Subtotal, Subtitle B....................................       -0.4       -0.1       -0.4       -0.6       -0.7       -0.7       -0.7       -2.7
                                                                 =======================================================================================
Subtitle C--Regulatory Relief:                                                                                                                          
    Physician Ownership Referral................................        0.0        0.1        0.1        0.1        0.1        0.1        0.1        0.4
    Other Regulatory Relief.....................................        0.0        0.1        0.2        0.2        0.2        0.2        0.2        1.1
    Physician Self Policing \2\.................................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
                                                                 ---------------------------------------------------------------------------------------
        Subtotal, Subtitle C....................................        0.1        0.2        0.2        0.3        0.3        0.3        0.3        1.6
                                                                 =======================================================================================
Subtitle D--Medical Liability Reform............................        0.0       -0.0       -0.0       -0.0       -0.0       -0.0       -0.1       -0.2
                                                                 =======================================================================================
Subtitle F--Medicare Part A:                                                                                                                            
    Part 1--Hospitals:                                                                                                                                  
        Reduce PPS update \3\...................................       -0.2       -1.1       -2.4       -3.8       -5.4       -7.1       -9.0      -29.0
        Reduce disproportionate share payments..................       -0.6       -0.8       -1.0       -1.1       -1.1       -1.2       -1.2       -7.1
        Reduce PPS capital by 15%...............................       -1.0       -1.2       -1.3       -1.3       -1.4       -1.4       -1.5       -9.0
        Rebase Capital rates....................................       -0.3       -0.4       -0.4       -0.4       -0.4       -0.4       -0.4       -2.7
        Reduce nonPPS capital by 15%............................       -0.1       -0.2       -0.2       -0.2       -0.2       -0.3       -0.3       -1.5
        Adjustment for capital-related tax costs................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
        Capital exceptions revisions............................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
        Reduce indirect medical education \4\...................       -0.7       -0.8       -0.8       -0.9       -1.1       -1.1       -1.2       -6.6
        Reduce direct medical education \4\.....................       -0.1       -0.2       -0.4       -0.7       -0.8       -0.9       -0.9       -3.9
        Reduce nonPPS update....................................        0.0        0.0        0.0        0.0        0.1        0.1        0.2        0.4
        Rebase LTC hospitals \5\................................        0.0        0.1        0.1        0.1        0.1        0.2        0.2        0.7
        LTC hospitals within other hospitals \6\................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.2
        Reduce payments for hospital bad debt...................       -0.1       -0.1       -0.2       -0.2       -0.2       -0.2       -0.2       -1.1
        Extent hemophilia pass through \7\......................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
        Christian Science practitioners.........................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
        EAC/RPC Hospitals \8\...................................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
        Rural referral centers..................................        0.0        0.1        0.1        0.1        0.1        0.1        0.1        0.7
        Floor on area wage index................................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0
    Part 2--Skilled Nursing Facilities:                                                                                                                 
        Skilled Nursing Facilities..............................       -0.2       -0.6       -1.0       -1.4       -1.8       -2.2       -2.8      -10.0
                                                                 ---------------------------------------------------------------------------------------
        Subtotal, Subtitle F....................................       -3.1       -5.1       -7.4       -9.7      -12.2      -14.6      -17.2      -69.5
                                                                 =======================================================================================
Subtitle G--Medicare Part B:                                                                                                                            
    Part 1--Payment Reforms:                                                                                                                            
        Reduce payments for physicians' services................       -0.7       -1.8       -2.9       -3.8       -4.7       -5.7       -6.8      -26.4
        Eliminate formula driven overpayment....................       -0.9       -1.2       -1.5       -2.0       -2.5       -3.3       -4.5      -15.9
        Reduce updates for durable medical equipment \9\........       -0.1       -0.3       -0.4       -0.5       -0.7       -0.8       -1.0       -3.8
        Reduce updates for clinical labs........................       -0.1       -0.4       -0.7       -0.9       -1.1       -1.3       -1.6       -6.0
        Extend outpatient capital reduction.....................        0.0        0.0        0.0        0.1        0.1        0.2        0.2       -0.6
        Extend outpatient payment reduction.....................        0.0        0.0        0.0        0.3        0.3        0.4        0.4       -1.4
        Freeze payments for ASC services........................       -0.0       -0.1       -0.1       -0.2       -0.2       -0.3       -0.4       -1.3
        Establish REACH program \10\............................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.2
        Allow chiropractors to make referrals...................        0.1        0.2        0.2        0.2        0.3        0.4        0.4        1.7
        Allow payments for certain oral cancer medication.......        0.0        0.1        0.1        0.1        0.1        0.1        0.1        0.5
        Interactions............................................       -0.1       -0.1       -0.2       -0.2       -0.3       -0.3       -0.3       -1.4
    Part 2--Part B Premium:                                                                                                                             
        Extension of Part B premium at 31.5%....................       -3.2       -4.1       -3.9       -5.1       -7.6      -10.2      -13.4      -47.5
        Income-related reduction in medicare subsidy............        0.0       -0.4       -0.7       -1.2       -1.5       -1.7       -2.0       -7.5
                                                                 ---------------------------------------------------------------------------------------
        Subtotal, Subtitle G....................................       -4.9       -8.1      -10.0      -13.9      -18.7      -23.8      -30.1     -109.5
                                                                 =======================================================================================
Subtitle H--Medicare Parts A and B:                                                                                                                     
    Payment for home health services............................        0.0       -1.4       -2.3       -2.8       -3.2       -3.6       -4.1      -17.3
    Medicare second payer improvements..........................        0.0        0.0        0.0       -1.3       -1.5       -1.6       -1.8       -6.2
                                                                 ---------------------------------------------------------------------------------------
        Subtotal, Subtitle H....................................        0.0       -1.4       -2.3       -4.0       -4.6       -5.2       -5.9      -23.5
                                                                 =======================================================================================
Change in Net Mandatory Medicare Outlays before Failsafe........       -8.1      -15.6      -22.1      -31.7      -42.3      -53.0      -65.7     -238.4
Additional Outlays Reduction Required by Failsafe, Net of                                                                                               
 Premiums \11\..................................................        0.0        0.0       -4.6       -7.7       -6.9       -7.0       -5.5      -31.8
                                                                 ---------------------------------------------------------------------------------------
    Total, Medicare.............................................       -8.1      -15.6      -26.7      -39.4      -49.2      -59.9      -71.3     -270.2
                                                                 =======================================================================================
Subtitle E--Teaching Hospitals and Graduate Medical Education                                                                                           
 Trust Fund.....................................................        0.0        0.4        0.6        2.0        3.0        4.0        5.8       15.8
                                                                 ---------------------------------------------------------------------------------------
        Total, H.R. 2425........................................       -8.1      -15.2      -26.1      -37.4      -46.2      -55.9      -65.5     -254.4
                                                                 =======================================================================================
     Memorandum: Monthly Part B Premium (By calendar year):                                                                                             
                                                                                                                                                        
Estimated premium before failsafe...............................      53.40      57.40      61.80      67.10      75.10      81.90      90.90  .........
Estimated premium after failsafe................................      53.40      56.70      59.50      64.20      72.40      79.40      88.20  .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
FOOTNOTES:                                                                                                                                              
\1\ Estimate includes medical savings accounts provision.                                                                                               
\2\ This provision would increase spending by about $40 million over the period 1996 through 2002.                                                      
\3\ Includes provision for sole community hospitals.                                                                                                    
\4\ These provisions are described in Subtitle E and included by reference in Subtitle F.                                                               
\5\ This estimate assumes that the provision will only be applied to existing LTC facilities.                                                           
\6\ This estimate assumes that grandfathering would apply only to existing long term care hospitals that are located in the same building as, or on the 
  same campus as, another hospital.                                                                                                                     
\7\ This provision would cost approximately $5 million per year.                                                                                        
\8\ This provision is budget neutral if EACH/RPCH designation is limited to those hospitals currently so designated, hospitals/facilities can be        
  designated as such.                                                                                                                                   
\9\ This line includes a 1% annual update for prosthetics and orthotics                                                                                 
\10\ This estimate assumes that policy is to provide cost-based reimbursement for specified Part B services only, as specified in subtitle. The         
  provision would cost approximately $20-$30 million per year.                                                                                          
\11\ For this estimate, CBO assumes that the target levels of benefits would be consistent with the mandatory spending levels specified in the budget   
  resolution. Reductions in outlays for benefits would be larger than the amounts shown here because of interactions with the Part B premium.           
NOTES:                                                                                                                                                  
Details may not sum to total because of rounding.                                                                                                       
These estimates assume an enactment date of November 15, 1995. The estimates would change if the proposal was enacted at a later date.                  
To the extent that health care providers are able to offset lower reimbursements by shifting costs to other payers, federal revenues could fall.        
These estimates do not incorporate changes in discretionary spending for administration.                                                                


                                        H.R. 2425 AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS--BY FISCAL YEAR                                        
                                                                [In billions of dollars]                                                                
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          1995       1996       1997       1998       1999       2000       2001       2002      Total  
--------------------------------------------------------------------------------------------------------------------------------------------------------
Comparison of Mandatory Medicare Spending Under H.R.                                                                                                    
 2425 With Current Law:                                                                                                                                 
                                                                                                                                                        
Gross Outlays for Medicare Benefits before Failsafe:                                                                                                    
Current Law..........................................      177.8      198.6      219.1      240.1      263.0      287.7      314.8      344.8  .........
H.R. 2425............................................  .........      193.7      208.0      222.6      237.6      254.6      273.7      294.5  .........
Change...............................................  .........       -4.9      -11.1      -17.5      -25.5      -33.1      -41.1      -50.3     -183.5
Less: Part A and Flat Part B Premiums before                                                                                                            
 Failsafe:                                                                                                                                              
Current Law..........................................      -20.1      -20.3      -21.9      -24.4      -26.0      -27.2      -28.5      -29.9  .........
H.R. 2425............................................  .........      -23.4      -26.0      -28.3      -31.0      -34.9      -38.7      -43.3  .........
Change...............................................  .........       -3.2       -4.1       -3.9       -5.1       -7.6      -10.2      -13.4      -47.5
Less: Income-Related Part B Premiums before Failsafe:                                                                                                   
Current Law..........................................        0.0        0.0        0.0        0.0        0.0        0.0        0.0        0.0  .........
H.R. 2425............................................  .........        0.0       -0.4       -0.7       -1.2       -1.5       -1.7       -2.0  .........
Change...............................................  .........        0.0       -0.4       -0.7       -1.2       -1.5       -1.7       -2.0       -7.5
Net Outlays for Medicare Benefits before Failsafe:                                                                                                      
Current Law..........................................      157.7      178.4      197.2      215.7      237.1      260.5      286.3      314.9  .........
H.R. 2425............................................  .........      170.3      181.6      193.6      205.3      218.2      233.3      249.2  .........
Change...............................................  .........       -8.1      -15.6      -22.1      -31.7      -42.3      -53.0      -65.7     -238.4
Additional Outlay Reductions Required by Failsafe,                                                                                                      
 Net of Premiums.....................................  .........        0.0        0.0       -4.6       -7.7       -6.9       -7.0       -5.5      -31.8
Change in Net Outlays with Failsafe..................  .........       -8.1      -15.6      -26.7      -39.4      -49.2      -59.9      -71.3     -270.2
Net Outlays for Medicare Benefits Under H.R. 2425....  .........      170.3      181.6      189.0      197.6      211.3      226.4      243.7  .........
Net Medicare Outlays Including Mandatory                                                                                                                
 Administration Under H.R. 2425......................  .........      170.7      181.9      189.3      198.0      211.6      226.7      244.0  .........
--------------------------------------------------------------------------------------------------------------------------------------------------------

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to subdivision (A) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that it was as a 
result of the Committee's oversight activities concerning the 
financial problems facing both the Hospital Insurance and 
Supplementary Medical Insurance Trust Funds that the Committee 
concluded that it is appropriate to enact the provisions 
contained in the bill.

    B. Summary of Findings and Recommendations of the Committee on 
                    Government Reform and Oversight

    With respect to subdivision (D) of clause 2(l)(3) of rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee advises that no oversight 
findings or recommendations have been submitted to this 
Committee by the Committee on Government Reform and Oversight 
with respect to the provisions contained in this bill.

                    C. Inflationary Impact Statement

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee states that the 
provisions of the bill are not expected to have an overall 
inflationary impact on prices and costs in the operation of the 
national economy. As is indicated above (in part IV of this 
report), the bill is projected to be deficit neutral over 
fiscal years 1996-2002.

                VI. APPLICABILITY OF HOUSE RULE XXI5(C)

    Rule XXI5(c) of the Rules of the House of Representatives 
provides that ``No bill or joint resolution, amendment, or 
conference report carrying a Federal income tax rate increase 
shall be considered as passed or agreed to unless so determined 
by a vote of not less than three-fifths of the Members 
voting.'' The Committee has carefully reviewed the provisions 
of H.R. 2425 approved by the Committee to determine whether any 
of these provisions constitute a Federal income tax rate 
increase within the meaning of the House Rules. It is the 
opinion of the Committee that there is no provision of H.R. 
2425 that constitutes a Federal income tax rate increase within 
the meaning of House Rule XXI5(c) or (d).

          VII. APPLICABILITY OF FEDERAL ADVISORY COMMITTEE ACT

    Pursuant to the Federal Advisory Committee Act (5 U.S.C., 
App., section 5(b)), the Committee states that any advisory 
bodies created by the bill, such as the Medicare Payment Review 
Commission in section 15031 and the Commission on the Effect of 
the Baby Boom Generation in section 15031, are consciously 
created, and are deemed appropriate and necessary to carry out 
the purposes of the bill. It is the view of the Committee that 
the functions of any such advisory bodies are not being and 
could not be performed by one or more agencies or by an 
advisory committee already in existence, or by enlarging the 
mandate of an existing advisory committee.

       VIII. CHANGES IN EXISTING LAW MADE BY THE BILL AS REPORTED

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                          SOCIAL SECURITY ACT

          * * * * * * *

              TITLE XI--GENERAL PROVISIONS AND PEER REVIEW

          * * * * * * *

                       Part A--General Provisions

          * * * * * * *

     appointment of the administrator of the health care financing 
                             administration

    Sec. 1117. The Administrator of the Health Care Financing 
Administration shall be appointed by the [President by and with 
the advice and consent of the Senate] Secretary of Health and 
Human Services.
          * * * * * * *

  exclusion of certain individuals and entities from participation in 
                medicare and state health care programs

    Sec. 1128. (a) * * *
          * * * * * * *
    (c) Notice, Effective Date, and Period of Exclusion.--(1) * 
* *
          * * * * * * *
    (3)(A) * * *
          * * * * * * *
    (D) In the case of an exclusion of an individual or entity 
under paragraph (1), (2), or (3) of subsection (b), the period 
of the exclusion shall be 3 years, unless the Secretary 
determines in accordance with regulations that a shorter period 
is appropriate because of mitigating circumstances or that a 
longer period is appropriate because of aggravating 
circumstances.
    (E) In the case of an exclusion of an individual or entity 
under subsection (b)(4) or (b)(5), the period of the exclusion 
shall not be less than the period during which the individual's 
or entity's license to provide health care is revoked, 
suspended, or surrendered, or the individual or the entity is 
excluded or suspended from a Federal or State health care 
program.
    (F) In the case of an exclusion of an individual or entity 
under subsection (b)(6)(B), the period of the exclusion shall 
be not less than 1 year.
          * * * * * * *

                        civil monetary penalties

    Sec. 1128A. (a) Any person (including an organization, 
agency, or other entity, but excluding a beneficiary, as 
defined in subsection (i)(5)) that--
          (1) knowingly presents or causes to be presented to 
        an officer, employee, or agent of the United States, or 
        of any department or agency thereof, or of any State 
        agency (as defined in subsection (i)(1)), a claim (as 
        defined in subsection (i)(2)) that the Secretary 
        determines--
                  (A) * * *
          * * * * * * *
          (2) knowingly presents or causes to be presented to 
        any person a request for payment which is in violation 
        of the terms of (A) an assignment under section 
        1842(b)(3)(B)(ii), or (B) an agreement with a State 
        agency (or other requirement of a State plan under 
        title XIX) not to charge a person for an item or 
        service in excess of the amount permitted to be 
        charged, or (C) an agreement to be a participating 
        physician or supplier under section 1842(h)(1), or (D) 
        an agreement pursuant to section 1866(a)(1)(G), or
          (3) [gives] knowingly gives or causes to be given to 
        any person, with respect to coverage under title XVIII 
        of inpatient hospital services subject to the 
        provisions of section 1886, information that he knows 
        or should know is false or misleading, and that could 
        reasonably be expected to influence the decision when 
        to discharge such person or another individual from the 
        hospital;
          * * * * * * *
    (b)(1) * * *
          * * * * * * *
    (3)(A) Any physician who executes a document described in 
subparagraph (B) with respect to an individual knowing that all 
of the requirements referred to in such subparagraph are not 
met with respect to the individual shall be subject to a civil 
monetary penalty of not more than the greater of--
          (i) $5,000, or
          (ii) three times the amount of the payments under 
        title XVIII for home health services which are made 
        pursuant to such certification,.
    (B) A document described in this subparagraph is any 
document that certifies, for purposes of title XVIII, that an 
individual meets the requirements of section 1814(a)(2)(C) or 
1835(a)(2)(A) in the case of home health services furnished to 
the individual.
          * * * * * * *
    (f) Civil money penalties and assessments imposed under 
this section may be compromised by the Secretary and may be 
recovered in a civil action in the name of the United States 
brought in United States district court for the district where 
the claim was presented, or where the claimant resides, as 
determined by the Secretary. Amounts recovered under this 
section shall be paid to the Secretary and disposed of as 
follows:
          (1) * * *
          * * * * * * *
          (3) The remainder of the amounts recovered shall be 
        deposited [as miscellaneous receipts of the Treasury of 
        the United States] in the Anti-Fraud and Abuse Trust 
        Fund established under section 1893(g).
The amount of such penalty or assessment, when finally 
determined, or the amount agreed upon in compromise, may be 
deducted from any sum then or later owing by the United States 
or a State agency to the person against whom the penalty or 
assessment has been assessed.
          * * * * * * *
    (i) For the purposes of this section:
          (1) * * *
          * * * * * * *
          (6) The term ``should know'' means that a person, 
        with respect to information--
                  (A) acts in deliberate ignorance of the truth 
                or falsity of the information; or
                  (B) acts in reckless disregard of the truth 
                or falsity of the information,
        and no proof of specific intent to defraud is required.
          * * * * * * *

  criminal penalties for acts involving medicare or state health care 
                                programs

    Sec. 1128B. (a) * * *
    (b)(1) * * *
    (2) Whoever knowingly and willfully offers or pays any 
remuneration (including any kickback, bribe, or rebate) 
directly or indirectly, overtly or covertly, in cash or in kind 
to any person [to induce] for the significant purpose of 
inducing such person--
          (A) * * *
          * * * * * * *
    (3) Paragraphs (1) and (2) shall not apply to--
          (A) * * *
          * * * * * * *
          (D) a waiver of any coinsurance under part B of title 
        XVIII by a Federally qualified health care center with 
        respect to an individual who qualifies for subsidized 
        services under a provision of the Public Health Service 
        Act; [and]
          (E) any payment practice specified by the Secretary 
        in regulations promulgated pursuant to section 14(a) of 
        the Medicare and Medicaid Patient and Program 
        Protection Act of 1987[.] ; and
          (F) any remuneration between an organization and an 
        individual or entity providing services pursuant to a 
        written agreement between the organization and the 
        individual or entity if the organization is a 
        MedicarePlus organization under part C of title XVIII 
        or if the written agreement places the individual or 
        entity at substantial financial risk for the cost or 
        utilization of the items or services which the 
        individual or entity is obligated to provide, whether 
        through a withhold, capitation, incentive pool, per 
        diem payment, or any other similar risk arrangement 
        which places the individual or entity at substantial 
        financial risk.
          * * * * * * *


               voluntary disclosure of acts or omissions


    Sec. 1129. (a) Establishment of Voluntary Disclosure 
Program.--Not later than 3 months after the date of the 
enactment of this section, the Secretary shall establish a 
program to encourage individuals and entities to voluntarily 
disclose to the Secretary information on acts or omissions of 
the individual or entity which constitute grounds for the 
imposition of a sanction described in section 1128, 1128A, or 
1128B.
    (b) Effect of Voluntary Disclosure.--If an individual or 
entity voluntarily discloses information with respect to an act 
or omission to the Secretary under subsection (a), the 
following rules shall apply:
          (1) The Secretary may waive, reduce, or otherwise 
        mitigate any sanction which would otherwise be 
        applicable to the individual or entity under section 
        1128, 1128A, or 1128B as a result of the act or 
        omission involved.
          (2) No qui tam action may be brought pursuant to 
        chapter 37 of title 31, United States Code, against the 
        individual or entity with respect to the act or 
        omission involved.


                           advisory opinions


    Sec. 1130. (a) Issuance of Advisory Opinions.--The 
Secretary shall issue written advisory opinions as provided in 
this section.
    (b) Matters Subject to Advisory Opinions.--The Secretary 
shall issue advisory opinions as to the following matters:
          (1) What constitutes prohibited remuneration within 
        the meaning of section 1128B(b).
          (2) Whether an arrangement or proposed arrangement 
        satisfies the criteria set forth in section 1128B(b)(3) 
        for activities which do not result in prohibited 
        remuneration.
          (2) Whether an arrangement or proposed arrangement 
        satisfies the criteria which the Secretary has 
        established, or shall establish by regulation for 
        activities which do not result in prohibited 
        remuneration.
          (4) What constitutes an inducement to reduce or limit 
        services to individuals entitled to benefits under 
        title XVIII or title XIX or title XXI within the 
        meaning of section 1128B(b).
          (5) Whether any activity or proposed activity 
        constitutes grounds for the imposition of a sanction 
        under section 1128, 1128A, or 1128B.
    (c) Matters Not Subject to Advisory Opinions.--Such 
advisory opinions shall not address the following matters:
          (1) Whether the fair market value shall be, or was 
        paid or received for any goods, services or property.
          (2) Whether an individual is a bona fide employee 
        within the requirements of section 3121(d)(2) of the 
        Internal Revenue Code of 1986.
    (d) Effect of Advisory Opinions.--
          (1) Binding as to secretary and parties involved.--
        Each advisory opinion issued by the Secretary shall be 
        binding as to the Secretary and the party or parties 
        requesting the opinion.
          (2) Failure to seek opinion.--The failure of a party 
        to seek an advisory opinion may not be introduced into 
        evidence to prove that the party intended to violate 
        the provisions of sections 1128, 1128A, or 1128B.
    (e) Regulations.--
          (1) In general.--Not later than 180 days after the 
        date of the enactment of this section, the Secretary 
        shall issue regulations of this section, the Secretary 
        shall issue regulations to carry out this section. Such 
        regulations shall provide for--
                  (A) the procedure to be followed by a party 
                applying for an advisory opinion;
                  (B) the procedure to be followed by the 
                Secretary in responding to a request for an 
                advisory opinion;
                  (C) the interval in which the Secretary shall 
                respond;
                  (D) the reasonable fee to be charged to the 
                party requested an advisory opinion; and
                  (E) the manner in which advisory opinions 
                will be made available to the public.
          (2) Specific contents.--Under the regulations 
        promulgated pursuant to paragraph (1)--
                  (A) the Secretary shall be required to 
                respond to a party requesting an advisory 
                opinion by not later than 30 days after the 
                request is received; and
                  (B) the fee charged to the party requesting 
                an advisory opinion shall be equal to the costs 
                incurred by the Secretary in responding to the 
                request.
          * * * * * * *

               [Medicare and Medicaid coverage data bank

    [Sec. 1144. (a) Establishment of Data Bank.--The Secretary 
shall establish a Medicare and Medicaid Coverage Data Bank 
(hereafter in this section referred to as the ``Data Bank'') 
to--
          [(1) further the purposes of section 1862(b) in the 
        identification of, and collection from, third parties 
        responsible for payment for health care items and 
        services furnished to medicare beneficiaries, and
          [(2) assist in the identification of, and the collect 
        from, third parties responsible for the reimbursement 
        of costs incurred by any State plan under title XIX 
        with respect of medicaid beneficiaries, upon request by 
        the State agency described in section 1902(a)(5) 
        administering such plan.
    [(b) Information in Data Bank.--
          [(1) In general.--The Data Bank shall contain 
        information obtained pursuant to section 6103(1)(12) of 
        the Internal Revenue Code of 1986 and subsection (c).
          [(2) Disclosure of information in data bank.--The 
        Secretary is authorized until September 30, 1998--
                  [(A) (subject to the restriction in 
                subparagraph (D)(i) of section 6103(l)(12) of 
                the Internal Revenue Code of 1986) to disclose 
                any information in the Data Bank obtained 
                pursuant to such section solely for the 
                purposes of such section, and
                  [(B) (subject to the restriction in 
                subsection (c)(7)) to disclose any other 
                information in the Data Bank to any State 
                agency described in section 1902(a)(5), 
                employer, or group health plan solely for the 
                purposes described in subsection (a).
    [(c) Requirement That Employers Report Information.--
          [(1) Reporting requirement.--
                  [(A) In general.--Any employer described in 
                paragraph (2) shall report to the Secretary (in 
                such form and manner as the Secretary 
                determines will minimize the burden of such 
                reporting) with respect to each electing 
                individual the information required under 
                paragraph (5) for each calendar year beginning 
                on or after January 1, 1994, and before January 
                1, 1998.
                  [(B) Special rule.--To the extent a group 
                health plan provides information required under 
                paragraph (5) in a form and manner specified by 
                the Secretary (in consultation with the 
                Secretary of Labor) on behalf of an employer in 
                accordance with section 101(f) of the Employee 
                Retirement Income Security Act of 1974, the 
                employer has complied with the reporting 
                requirement under subparagraph (A) with respect 
                to the reporting of such information.
          [(2) Employer described.--An employer is described in 
        this paragraph if such employer has, or contributes to, 
        a group health plan, with respect to which at least 1 
        employee of such employer is an electing individual.
          [(3) Electing individual.--For purposes of this 
        subsection, the term ``electing individual'' means an 
        individual associated or formerly associated with the 
        employer in a business relationship who elects coverage 
        under the employer's group health plan.
          [(4) Certain individuals excluded.--For purposes of 
        this subsection, an individual providing service 
        referred to in section 3121(a)(7)(B) of the Internal 
        Revenue Code of 1986 shall not be considered an 
        employee or electing individual with respect to an 
        employer.
          [(5) Information Required.--For purposes of paragraph 
        (1), each employer shall provide the following 
        information:
                  [(A) The name and TIN of the electing 
                individual.
                  [(B) The type of group health plan coverage 
                (single or family) elected by the electing 
                individual.
                  [(C) The name, address, and identifying 
                number of the group health plan elected by such 
                electing individual.
                  [(D) The name and TIN of each other 
                individual covered under the group health plan 
                pursuant to such election.
                  [(E) The period during which such coverage is 
                elected.
                  [(F) The name, address, and TIN of the 
                employer.
          [(6) time of filing.--For purposes of determining the 
        date for filing the report under paragraph (1), such 
        report shall be treated as a statement described in 
        section 6051(d) of the Internal Revenue Code of 1986.
          [(7) Limits on disclosure of information reported.--
                  [(A) In general.--The disclosure of the 
                information reported under paragraph (1) shall 
                be restricted by the Secretary under rules 
                similar to the rules of subsections(a) and (p) 
                of section 6103 of the Internal Revenue Code of 
                1986.
                  [(B) Penalty for unauthorized willful 
                disclosure of information.--The unauthorized 
                disclosure of any information reported under 
                paragraph (1) shall be subject to the penalty 
                described in paragraph (1), (2), (3), or (4) of 
                section 7213(a) of such Code.
          [(9) Penalty for failure to report.--In the case of 
        the failure of an employer (other than a Federal or 
        other governmental entity) to report under paragraph 
        (1)(A) with respect to each electing individual, the 
        Secretary shall impose a penalty as described in part 
        II of subchapter B of chapter 68 of the Internal 
        Revenue Code of 1986.
    [(d) Fees for Data Bank Services.--The Secretary shall 
establish fees for services provided under this section which 
shall remain available, without fiscal year limitation, to the 
Secretary to cover the administrative costs to the Data Bank of 
providing such services.
    [(f) Definitions.--In this section:
          [(1) Medicare beneficiary.--The term ``medicare 
        beneficiary'' means an individual entitled to benefits 
        under part A, or enrolled under part B, of title XVIII, 
        but does not include such an individual enrolled in 
        part A under section 1818.
          [(2) Medicaid beneficiary.--The term ``medicaid 
        beneficiary'' means an individual entitled to benefits 
        under a State plan for medical assistance under title 
        XIX (including a State plan operating under a statewide 
        waiver under section 1115).
          [(3) Group health plan.--The term ``group health 
        plan'' shall have the meaning given to such term by 
        section 5000(b)(1) of the Internal Revenue Code of 
        1986.
          [(4) TIN.--The term ``TIN'' shall have the meaning 
        given to such term by section 7701(a)(41) of such 
        Code.]
          * * * * * * *

        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

          * * * * * * *


                    providing for choice of coverage


  Sec. 1805. (a) Choice of Coverage.--
          (1) In general.--Subject to the provisions of this 
        section, every individual who is entitled to benefits 
        under part A and enrolled under part B shall elect to 
        receive benefits under this title through one of the 
        following:
                  (A) Through fee-for-service system.--Through 
                the provisions of parts A and B.
                  (B) Through a MedicarePlus product.--Through 
                a MedicarePlus product (as defined in paragraph 
                (2)), which may be--
                          (i) a high deductible/medisave 
                        product (and a contribution into a 
                        MedicarePlus medical savings account 
                        (MSA)),
                          (ii) a product offered by a provider-
                        sponsored organization,
                          (iii) a product offered by an 
                        organization that is a Taft-Hartley 
                        plan or association, or
                          (iv) a product providing for benefits 
                        on a fee-for-service or other basis.
          (2) MedicarePlus product defined.--For purposes this 
        section and part C, the term ``MedicarePlus product'' 
        means health benefits coverage offered under a policy, 
        contract, or plan by a MedicarePlus organization (as 
        defined in section 1851(a)) pursuant to and in 
        accordance with a contract under section 1857.
          (3) Terminology relating to options.--For purposes of 
        this section and part C--
                  (A) Non-medicare-plus option.--An individual 
                who has made the election described in 
                paragraph (1)(A) is considered to have elected 
                the ``Non-MedicarePlus option''.
                  (B) MedicarePlus option.--An individual who 
                has made the election described in paragraph 
                (1)(B) to obtain coverage through a 
                MedicarePlus product is considered to have 
                elected the ``MedicarePlus option'' for that 
                product.
  (b) Special rules.--
          (1) Residence requirement.--Except as the Secretary 
        may otherwise provide, an individual is eligible to 
        elect a MedicarePlus product offered by a MedicarePlus 
        organization only if the organization in relation to 
        the product serves the geographic area in which the 
        individual resides.
          (2) Affiliation requirements for certain products.--
                  (A) In general.--Subject to subparagraph (B), 
                an individual is eligible to elect a 
                MedicarePlus product offered by a limited 
                enrollment MedicarePlus organization (as 
                defined in section 1852(c)(4)(D)) only if--
                          (i) the individual is eligible under 
                        section 1852(c)(4) to make such 
                        election, and
                          (ii) in the case of a MedicarePlus 
                        organization that is a Taft-Hartley 
                        sponsor (as defined in section 
                        1852(c)(4)), the individual elected 
                        under this section a MedicarePlus 
                        product offered by the sponsor during 
                        the first enrollment period in which 
                        the individual was eligible to make 
                        such election with respect to such 
                        sponsor.
                  (B) No reelection after disenrollment for 
                certain products.--An individual is not 
                eligible to elect a MedicarePlus product 
                offered by a MedicarePlus organization that is 
                a Taft-Hartley sponsor if the individual 
                previously had elected a MedicarePlus product 
                offered by the organization and had 
                subsequently discontinued to elect such a 
                product offered by the organization.
          (3) Special rule for certain annuitants.--An 
        individual is not eligible to elect a high deductible/
        medisave product if the individual is entitled to 
        benefits under chapter 89 of title 5, United States 
        Code, as an annuitant or spouse of an annuitant.
  (c) Process for Exercising Choice.--
          (1) In general.--The Secretary shall establish a 
        process through which elections described in subsection 
        (a) are made and changed, including the form and manner 
        in which such elections are made and changed. Such 
        elections shall be made or changed only during coverage 
        election periods specified under subsection (e) and 
        shall become effective as provided in subsection (f).
          (2) Expedited implementation.--The Secretary shall 
        establish the process of electing coverage under this 
        section during the transition period (as defined in 
        subsection (e)(1)(B)) in such an expedited manner as 
        will permit such an election for MedicarePlus products 
        in an area as soon as such products become available in 
        that area.
          (3) Coordination through medicare-plus 
        organizations.--
                  (A) Enrollment.--Such process shall permit an 
                individual who wishes to elect a MedicarePlus 
                product offered by a MedicarePlus organization 
                to make such election through the filing of an 
                appropriate election form with the 
                organization.
                  (B) Disenrollment.--Such process shall permit 
                an individual, who has elected a MedicarePlus 
                product offered by a MedicarePlus organization 
                and who wishes to terminate such election, to 
                terminate such election through the filing of 
                an appropriate election form with the 
                organization.
          (4) Default.--
                  (A) Initial election.--
                          (i) In general.--Subject to clause 
                        (ii), an individual who fails to make 
                        an election during an initial election 
                        period under subsection (e)(1) is 
                        deemed to have chosen the Non-
                        MedicarePlus option.
                          (ii) Seamless continuation of 
                        coverage.--The Secretary shall 
                        establish procedures under which 
                        individuals who are enrolled with a 
                        MedicarePlus organization at the time 
                        of the initial election period and who 
                        fail to elect to receive coverage other 
                        than through the organization are 
                        deemed to have elected an appropriate 
                        MedicarePlus product offered by the 
                        organization.
                  (B) Continuing periods.--An individual who 
                has made (or deemed to have made) an election 
                under this section is considered to have 
                continued to make such election until such time 
                as--
                          (i) the individual changes the 
                        election under this section, or
                          (ii) a MedicarePlus product is 
                        discontinued, if the individual had 
                        elected such product at the time of the 
                        discontinuation.
          (5) Agreements with commissioner of social security 
        to promote efficient administration.--In order to 
        promote the efficient administration of this section 
        and the MedicarePlus program under part C, the 
        Secretary may enter into an agreement with the 
        Commissioner of Social Security under which the 
        Commissioner performs administrative responsibilities 
        relating to enrollment and disenrollment in 
        MedicarePlus products under this section.
  (d) Provision of Beneficiary Information to Promote Informed 
Choice.--
          (1) In general.--The Secretary shall provide for 
        activities under this subsection to disseminate broadly 
        information to medicare beneficiaries (and prospective 
        medicare beneficiaries) on the coverage options 
        provided under this section in order to promote an 
        active, informed selection among such options. Such 
        information shall be made available on such a timely 
        basis (such as 6 months before the date an individual 
        would first attain eligibility for medicare on the 
        basis of age) as to permit individuals to elect the 
        MedicarePlus option during the initial election period 
        described in subsection (e)(1).
          (2) Use of nonfederal entities.--The Secretary shall, 
        to the maximum extent feasible, enter into contracts 
        with appropriate non-Federal entities to carry out 
        activities under this subsection.
          (3) Specific activities.--In carrying out this 
        subsection, the Secretary shall provide for at least 
        the following activities in all areas in which 
        MedicarePlus products are offered:
                  (A) Information booklet.--
                          (i) In general.--The Secretary shall 
                        publish an information booklet and 
                        disseminate the booklet to all 
                        individuals eligible to elect the 
                        MedicarePlus option under this section 
                        during coverage election periods.
                          (ii) Information included.--The 
                        booklet shall include information 
                        presented in plain English and in a 
                        standardized format regarding--
                                  (I) the benefits (including 
                                cost-sharing) and premiums for 
                                the various MedicarePlus 
                                products in the areas involved;
                                  (II) the quality of such 
                                products, including consumer 
                                satisfaction information; and
                                  (III) rights and 
                                responsibilities of medicare 
                                beneficiaries under such 
                                products.
                          (iii) Periodic updating.--The booklet 
                        shall be updated on a regular basis 
                        (not less often than once every 12 
                        months) to reflect changes in the 
                        availability of MedicarePlus products 
                        and the benefits and premiums for such 
                        products.
                  (B) Toll-free number.--The Secretary shall 
                maintain a toll-free number for inquiries 
                regarding MedicarePlus options and the 
                operation of part C.
                  (C) General information in medicare 
                handbook.--The Secretary shall include 
                information about the MedicarePlus option 
                provided under this section in the annual 
                notice of medicare benefits under section 1804.
  (e) Coverage Election Periods.--
          (1) Initial choice upon eligibility to make 
        election.--
                  (A) In general.--In the case of an individual 
                who first becomes entitled to benefits under 
                part A and enrolled under part B after the 
                beginning of the transition period (as defined 
                in subparagraph (B)), the individual shall make 
                the election under this section during a period 
                (of a duration and beginning at a time 
                specified by the Secretary) at the first time 
                the individual both is entitled to benefits 
                under part A and enrolled under part B. Such 
                period shall be specified in a manner so that, 
                in the case of an individual who elects a 
                MedicarePlus product during the period, 
                coverage under the product becomes effective as 
                of the first date on which the individual may 
                receive such coverage.
                  (B) Transition period defined.--In this 
                subsection, the term ``transition period'' 
                means, with respect to an individual in an 
                area, the period beginning on the first day of 
                the first month in which a MedicarePlus product 
                is first made available to individuals in the 
                area and ending with the month preceding the 
                beginning of the first annual, coordinated 
                election period under paragraph (3).
          (2) During transition period.--Subject to paragraph 
        (6)--
                  (A) Continuous open enrollment into a 
                medicare-plus option.--During the transition 
                period, an individual who is eligible to make 
                an election under this section and who has 
                elected the non-MedicarePlus option may change 
                such election to a MedicarePlus option at any 
                time.
                  (B) Open disenrollment before end of 
                transition period.--
                          (i) In general.--During the 
                        transition period, an individual who 
                        has elected a MedicarePlus option for a 
                        MedicarePlus product may change such 
                        election to another MedicarePlus 
                        product or to the non-MedicarePlus 
                        option.
                          (ii) Special rule.--During the 
                        transition period, an individual who 
                        has elected a high deductible/medisave 
                        product may not change such election to 
                        a MedicarePlus product that is not a 
                        high deductible/medisave product unless 
                        the individual has had such election in 
                        effect for 12 months.
          (3) Annual, coordinated election period.--
                  (A) In general.--Subject to paragraph (5), 
                each individual who is eligible to make an 
                election under this section may change such 
                election during annual, coordinated election 
                periods.
                  (B) Annual, coordinated election period.--For 
                purposes of this section, the term ``annual, 
                coordinated election period'' means, with 
                respect to a calendar year (beginning with 
                1998), the month of October before such year.
                  (C) MedicarePlus health fair during october, 
                1996.--In the month of October, 1996, the 
                Secretary shall provide for a nationally 
                coordinated educational and publicity campaign 
                to inform individuals, who are eligible to 
                elect MedicarePlus products, about such 
                products and the election process provided 
                under this section (including the annual, 
                coordinated election periods that occur in 
                subsequent years).
          (4) Special 90-day disenrollment option.--
                  (A) In general.--In the case of the first 
                time an individual elects a MedicarePlus option 
                (other than a high deductible/medisave product) 
                under this section, the individual may 
                discontinue such election through the filing of 
                an appropriate notice during the 90-day period 
                beginning on the first day on which the 
                individual's coverage under the MedicarePlus 
                product under such option becomes effective.
                  (B) Effect of discontinuation of election.--
                An individual who discontinues an election 
                under this paragraph shall be deemed at the 
                time of such discontinuation to have elected 
                the Non-MedicarePlus option.
          (5) Special election periods.--An individual may 
        discontinue an election of a MedicarePlus product 
        offered by a MedicarePlus organization other than 
        during an annual, coordinated election period and make 
        a new election under this section if--
                  (A) the organization's or product's 
                certification under part C has been terminated 
                or the organization has terminated or otherwise 
                discontinued providing the product;
                  (B) in the case of an individual who has 
                elected a MedicarePlus product offered by a 
                MedicarePlus organization, the individual is no 
                longer eligible to elect the product because of 
                a change in the individual's place of residence 
                or other change in circumstances (specified by 
                the Secretary, but not including termination of 
                membership in a qualified association in the 
                case of a product offered by a qualified 
                association or termination of the individual's 
                enrollment on the basis described in clause (i) 
                or (ii) section 1852(c)(3)(B));
                  (C) the individual demonstrates (in 
                accordance with guidelines established by the 
                Secretary) that--
                          (i) the organization offering the 
                        product substantially violated a 
                        material provision of the 
                        organization's contract under part C in 
                        relation to the individual and the 
                        product; or
                          (ii) the organization (or an agent or 
                        other entity acting on the 
                        organization's behalf) materially 
                        misrepresented the product's provisions 
                        in marketing the product to the 
                        individual; or
                  (D) the individual meets such other 
                conditions as the Secretary may provide.
          (6) Special rule for high deductible/medisave 
        products.--Notwithstanding the previous provisions of 
        this subsection, an individual may elect a high 
        deductible/medisave product only during an annual, 
        coordinated election period described in paragraph 
        (3)(B) or during the month of October, 1996.
  (f) Effectiveness of Elections.--
          (1) During initial coverage election period.--An 
        election of coverage made during the initial coverage 
        election period under subsection (e)(1)(A) shall take 
        effect upon the date the individual becomes entitled to 
        benefits under part A and enrolled under part B, except 
        as the Secretary may provide (consistent with section 
        1838) in order to prevent retroactive coverage.
          (2) During transition; 90-day disenrollment option.--
        An election of coverage made under subsection (e)(2) 
        and an election to discontinue a MedicarePlus option 
        under subsection (e)(4) at any time shall take effect 
        with the first calendar month following the date on 
        which the election is made.
          (3) Annual, coordinated election period and medisave 
        election.--An election of coverage made during an 
        annual, coordinated election period (as defined in 
        subsection (e)(3)(B)) in a year or for a high 
        deductible/medisave product shall take effect as of the 
        first day of the following year.
          (4) Other periods.--An election of coverage made 
        during any other period under subsection (e)(5) shall 
        take effect in such manner as the Secretary provides in 
        a manner consistent (to the extent practicable) with 
        protecting continuity of health benefit coverage.
  (g) Effect of Election of MedicarePlus Option.--Subject to 
the provisions of section 1855(f), payments under a contract 
with a MedicarePlus organization under section 1857(a) with 
respect to an individual electing a MedicarePlus product 
offered by the organization shall be instead of the amounts 
which (in the absence of the contract) would otherwise be 
payable under parts A and B for items and services furnished to 
the individual.
  (h) Administration.--
          (1) In general.--This part and sections 1805 and 1876 
        shall be administered through an operating division (A) 
        that is established or identified by the Secretary in 
        the Department of Health and Human Services, (B) that 
        is separate from the Health Care Financing 
        Administration, and (C) the primary function of which 
        is the administration of this part and such sections. 
        The director of such division shall be of equal pay and 
        rank to that of the individual responsible for overall 
        administration of parts A and B.
          (2) Transfer authority.--The Secretary shall transfer 
        such personnel, administrative support systems, assets, 
        records, funds, and other resources in the Health Care 
        Financing Administration to the operating division 
        referred to in paragraph (1) as are used in the 
        administration of section 1876 and as may be required 
        to implement the provisions referred to in such 
        paragraph promptly and efficiently.


                   medicare payment review commission


  Sec. 1806. (a) Establishment.--There is hereby established 
the Medicare Payment Review Commission (in this section 
referred to as the ``Commission'').
  (b) Duties.--
          (1) General duties and reports.--The Commission shall 
        review, and make recommendations to Congress 
        concerning, payment policies under this title. By not 
        later than June 1 of each year, the Commission shall 
        submit a report to Congress containing an examination 
        of issues affecting the medicare program, including the 
        implications of changes in health care delivery in the 
        United States and in the market for health care 
        services on the medicare program. The Commission may 
        submit to Congress from time to time such other reports 
        as the Commission deems appropriate. The Secretary 
        shall respond to recommendations of the Commission in 
        notices of rulemaking proceedings under this title.
          (2) Specific duties relating to medicareplus 
        program.--Specifically, the Commission shall review, 
        with respect to the MedicarePlus program under part C--
                  (A) the appropriateness of the methodology 
                for making payment to plans under such program, 
                including the making of differential payments 
                and the distribution of differential updates 
                among different payment areas,
                  (B) the appropriateness of the mechanisms 
                used to adjust payments for risk and the need 
                to adjust such mechanisms to take into account 
                health status of beneficiaries,
                  (C) the implications of risk selection both 
                among MedicarePlus organizations and between 
                the MedicarePlus option and the non-
                MedicarePlus option,
                  (D) in relation to payment under part C, the 
                development and implementation of mechanisms to 
                assure the quality of care for those enrolled 
                with MedicarePlus organizations,
                  (F) the impact of the MedicarePlus program on 
                access to care for medicare beneficiaries, and
                  (G) other major issues in implementation and 
                further development of the MedicarePlus 
                program.
          (3) Specific duties relating to the failsafe budget 
        mechanism.--Specifically, the Commission shall review, 
        with respect to the failsafe budget mechanism described 
        in section 1895--
                  (A) the appropriateness of the expenditure 
                projections by the Secretary under section 
                1895(c) for each medicare sector;
                  (B) the appropriateness of the growth factors 
                for each sector and the ability to take into 
                account substitution across sectors;
                  (C) the appropriateness of the mechanisms for 
                implementing reductions in payment amounts for 
                different sectors, including any adjustments to 
                reflect changes in volume or intensity 
                resulting for any payment reductions;
                  (D) the impact of the mechanism on provider 
                participation in parts A and B and in the 
                MedicarePlus program; and
                  (E) the appropriateness of the medicare 
                benefit budget (under section 1895(c)(2)(C) of 
                the Social Security Act), particularly for 
                fiscal years after fiscal year 2002.
          (4) Specific duties relating to the fee-for-service 
        system.--Specifically, the Commission shall review 
        payment policies under parts A and B, including--
                  (A) the factors affecting expenditures for 
                services in different sectors, including the 
                process for updating hospital, physician, and 
                other fees,
                  (B) payment methodologies; and
                  (C) the impact of payment policies on access 
                and quality of care for medicare beneficiaries.
          (5) Specific duties relating to interaction of 
        payment policies with health care delivery generally.--
        Specifically the Commission shall review the effect of 
        payment policies under this title on the delivery of 
        health care services under this title and assess the 
        implications of changes in the health services market 
        on the medicare program.
  (c) Membership.--
          (1) Number and appointment.--The Commission shall be 
        composed of 15 members appointed by Comptroller 
        General.
          (2) Qualifications.--The membership of the Commission 
        shall include individuals with national recognition for 
        their expertise in health finance and economics, 
        actuarial science, health facility management, health 
        plans and integrated delivery systems, reimbursement of 
        health facilities, physicians, and other providers of 
        services, and other related fields, who provide a mix 
        of different professionals, broad geographic 
        representation, and a balance between urban and rural 
        representatives, including physicians and other health 
        professionals, employers, third party payors, 
        individuals skilled in the conduct and interpretation 
        of biomedical, health services, and health economics 
        research and expertise in outcomes and effectiveness 
        research and technology assessment. Such membership 
        shall also include representatives of consumers and the 
        elderly.
          (3) Considerations in initial appointment.--To the 
        extent possible, in first appointing members to the 
        Commission shall consider appointing individuals who 
        (as of the date of the enactment of this section) were 
        serving on the Prospective Payment Assessment 
        Commission or the Physician Payment Review Commission.
          (4) Terms.--
                  (A) In general.--The terms of members of the 
                Commission shall be for 3 years except that the 
                Comptroller General shall designate staggered 
                terms for the members first appointed.
                  (B) Vacancies.--Any member appointed to fill 
                a vacancy occurring before the expiration of 
                the term for which the member's predecessor was 
                appointed shall be appointed only for the 
                remainder of that term. A member may serve 
                after the expiration of that member's term 
                until a successor has taken office. A vacancy 
                in the Commission shall be filled in the manner 
                in which the original appointment was made.
          (5) Compensation.--While serving on the business of 
        the Commission (including traveltime), a member of the 
        Commission shall be entitled to compensation at the per 
        diem equivalent of the rate provided for level IV of 
        the Executive Schedule under section 5315 of title 5, 
        United States Code; and while so serving away from home 
        and member's regular place of business, a member may be 
        allowed travel expenses, as authorized by the Chairman 
        of the Commission. Physicians serving as personnel of 
        the Commission may be provided a physician 
        comparability allowance by the Commission in the same 
        manner as Government physicians may be provided such an 
        allowance by an agency under section 5948 of title 5, 
        United States Code, and for such purpose subsection (i) 
        of such section shall apply to the Commission in the 
        same manner as it applies to the Tennessee Valley 
        Authority. For purposes of pay (other than pay of 
        members of the Commission) and employment benefits, 
        rights, and privileges, all personnel of the Commission 
        shall be treated as if they were employees of the 
        United States Senate.
          (6) Chairman; vice chairman.--The Comptroller General 
        shall designate a member of the Commission, at the time 
        of appointment of the member, as Chairman and a member 
        as Vice Chairman for that term of appointment.
          (7) Meetings.--The Commission shall meet at the call 
        of the Chairman.
  (d) Director and Staff; Experts and Consultants.--Subject to 
such review as the Comptroller General deems necessary to 
assure the efficient administration of the Commission, the 
Commission may--
          (1) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Comptroller 
        General) and such other personnel as may be necessary 
        to carry out its duties (without regard to the 
        provisions of title 5, United States Code, governing 
        appointments in the competitive service);
          (2) seek such assistance and support as may be 
        required in the performance of its duties from 
        appropriate Federal departments and agencies;
          (3) enter into contracts or make other arrangements, 
        as may be necessary for the conduct of the work of the 
        Commission (without regard to section 3709 of the 
        Revised Statutes (41 U.S.C. 5));
          (4) make advance, progress, and other payments which 
        relate to the work of the Commission;
          (5) provide transportation and subsistence for 
        persons serving without compensation; and
          (6) prescribe such rules and regulations as it deems 
        necessary with respect to the internal organization and 
        operation of the Commission.
  (e) Powers.--
          (1) Obtaining official data.--The Commission may 
        secure directly from any department or agency of the 
        United States information necessary to enable it to 
        carry out this section. Upon request of the Chairman, 
        the head of that department or agency shall furnish 
        that information to the Commission on an agreed upon 
        schedule.
          (2) Data collection.--In order to carry out its 
        functions, the Commission shall collect and assess 
        information
                  (A) utilize existing information, both 
                published and unpublished, where possible, 
                collected and assessed either by its own staff 
                or under other arrangements made in accordance 
                with this section,
                  (B) carry out, or award grants or contracts 
                for, original research and experimentation, 
                where existing information is inadequate, and
                  (C) adopt procedures allowing any interested 
                party to submit information for the 
                Commission's use in making reports and 
                recommendations.
          (3) Access of gao to information.--The Comptroller 
        General shall have unrestricted access to all 
        deliberations, records, and data of the Commission, 
        immediately upon request.
          (4) Periodic audit.--The Commission shall be subject 
        to periodic audit by the General Accounting Office.
  (f) Authorization of Appropriations.--
          (1) Request for appropriations.--The Commission shall 
        submit requests for appropriations in the same manner 
        as the Comptroller General submits requests for 
        appropriations, but amounts appropriated for the 
        Commission shall be separate from amounts appropriated 
        for the Comptroller General.
          (2) Authorization.--There are authorized to be 
        appropriated such sums as may be necessary to carry out 
        the provisions of this section. 60 percent of such 
        appropriation shall be payable from the Federal 
        Hospital Insurance Trust Fund, and 40 percent of such 
        appropriation shall be payable from the Federal 
        Supplementary Medical Insurance Trust Fund.


   standards for medicare information transactions and data elements


  Sec. 1807. (a) Adoption of Standards for Data Elements.--
          (1) In general.--Pursuant to subsection (b), the 
        Secretary shall adopt standards for information 
        transactions and data elements of medicare information 
        and modifications to the standards under this section 
        that are--
                  (A) consistent with the objective of reducing 
                the administrative costs of providing and 
                paying for health care; and
                  (B) developed or modified by a standard 
                setting organization (as defined in subsection 
                (h)(8)).
          (2) Special rule relating to data elements.--The 
        Secretary may adopt or modify a standard relating to 
        data elements that is different from the standard 
        developed by a standard setting organization, if--
                  (A) the different standard or modification 
                will substantially reduce administrative costs 
                to health care providers and health plans 
                compared to the alternative; and
                  (B) the standard or modification is 
                promulgated in accordance with the rulemaking 
                procedures of subchapter III of chapter 5 of 
                title 5, United States Code.
          (3) Security standards for health information 
        network.--
                  (A) In general.--Each person, who maintains 
                or transmits medicare information or data 
                elements of medicare information and is subject 
                to this section, shall maintain reasonable and 
                appropriate administrative, technical, and 
                physical safeguards--
                          (i) to ensure the integrity and 
                        confidentiality of the information;
                          (ii) to protect against any 
                        reasonably anticipated--
                                  (I) threats or hazards to the 
                                security or integrity of the 
                                information; and
                                  (II) unauthorized uses or 
                                disclosures of the information; 
                                and
                          (iii) to otherwise ensure compliance 
                        with this section by the officers and 
                        employees of such person.
                  (B) Security standards.--The Secretary shall 
                establish security standards and modifications 
                to such standards with respect to medicare 
                information network services, health plans, and 
                health care providers that--
                          (i) take into account--
                                  (I) the technical 
                                capabilities of record systems 
                                used to maintain medicare 
                                information;
                                  (II) the costs of security 
                                measures;
                                  (III) the need for training 
                                persons who have access to 
                                medicare information; and
                                  (IV) the value of audit 
                                trails in computerized record 
                                systems; and
                          (ii) ensure that a medicare 
                        information network service, if it is 
                        part of a larger organization, has 
                        policies and security procedures which 
                        isolate the activities of such service 
                        with respect to processing information 
                        in a manner that prevents unauthorized 
                        access to such information by such 
                        larger organization.
                The security standards established by the 
                Secretary shall be based on the standards 
                developed or modified by standard setting 
                organizations. If such standards do not exist, 
                the Secretary shall rely on the recommendations 
                of the Medicare Information Advisory Committee 
                (established under subsection (g)) and shall 
                consult with appropriate government agencies 
                and private organizations in accordance with 
                paragraph (5).
          (4) Implementation specifications.--The Secretary 
        shall establish specifications for implementing each of 
        the standards and the modifications to the standards 
        adopted pursuant to paragraph (1) or (3).
          (5) Assistance to the secretary.--In complying with 
        the requirements of this section, the Secretary shall 
        rely on recommendations of the Medicare Information 
        Advisory Committee established under subsection (g) and 
        shall consult with appropriate Federal and State 
        agencies and private organizations. The Secretary shall 
        publish in the Federal Register the recommendations of 
        the Medicare Information Advisory Committee regarding 
        the adoption of a standard under this section.
  (b) Standards for Information Transactions and Data 
Elements.--
          (1) In general.--The Secretary shall adopt standards 
        for transactions and data elements to make medicare 
        information uniformly available to be exchanged 
        electronically, that is--
                  (A) appropriate for the following financial 
                and administrative transactions: claims 
                (including coordination of benefits) or 
                equivalent encounter information, enrollment 
                and disenrollment, eligibility, premium 
                payments, and referral certification and 
                authorization; and
                  (B) related to other financial and 
                administrative transactions determined 
                appropriate by the Secretary consistent with 
                the goals of improving the operation of the 
                health care system and reducing administrative 
                costs.
          (2) Unique health identifiers.--
                  (A) Adoption of standards.--The Secretary 
                shall adopt standards providing for a standard 
                unique health identifier for each individual, 
                employer, health plan, and health care provider 
                for use in the medicare information system. In 
                developing unique health identifiers for each 
                health plan and health care provider, the 
                Secretary shall take into account multiple uses 
                for identifiers and multiple locations and 
                specialty classifications for health care 
                providers.
                  (B) Penalty for improper disclosure.--A 
                person who knowingly uses or causes to be used 
                a unique health identifier under subparagraph 
                (A) for a purpose that is not authorized by the 
                Secretary shall--
                          (i) be fined not more than $50,000, 
                        imprisoned not more than 1 year, or 
                        both; or
                          (ii) if the offense is committed 
                        under false pretenses, be fined not 
                        more than $100,000, imprisoned not more 
                        than 5 years, or both.
          (3) Code sets.--
                  (A) In general.--The Secretary, in 
                consultation with the Medicare Information 
                Advisory Committee, experts from the private 
                sector, and Federal and State agencies, shall--
                          (i) select code sets for appropriate 
                        data elements from among the code sets 
                        that have been developed by private and 
                        public entities; or
                          (ii) establish code sets for such 
                        data elements if no code sets for the 
                        data elements have been developed.
                  (B) Distribution.--The Secretary shall 
                establish efficient and low-cost procedures for 
                distribution (including electronic 
                distribution) of code sets and modifications 
                made to such code sets under subsection (c)(2).
          (4) Electronic signature.--
                  (A) In general.--The Secretary, after 
                consultation with the Medicare Information 
                Advisory Committee, shall promulgate 
                regulations specifying procedures for the 
                electronic transmission and authentication of 
                signatures, compliance with which will be 
                deemed to satisfy Federal and State statutory 
                requirements for written signatures with 
                respect to information transactions required by 
                this section and written signatures on 
                enrollment and disenrollment forms.
                  (B) Payments for services and premiums.--
                Nothing in this section shall be construed to 
                prohibit the payment of health care services or 
                health plan premiums by debit, credit, payment 
                card or numbers, or other electronic means.
          (5) Transfer of information between health plans.--
        The Secretary shall develop rules and procedures--
                  (A) for determining the financial liability 
                of health plans when health care benefits are 
                payable under two or more health plans; and
                  (B) for transferring among health plans 
                appropriate standard data elements needed for 
                the coordination of benefits, the sequential 
                processing of claims, and other data elements 
                for individuals who have more than one health 
                plan.
          (6) Coordination of benefits.--If, at the end of the 
        5-year period beginning on the date of the enactment of 
        this section, the Secretary determines that additional 
        transaction standards for coordinating benefits are 
        necessary to reduce administrative costs or duplicative 
        (or inappropriate) payment of claims, the Secretary 
        shall establish further transaction standards for the 
        coordination of benefits between health plans.
          (7) Protection of trade secrets.--Except as otherwise 
        required by law, the standards adopted under this 
        section shall not require disclosure of trade secrets 
        or confidential commercial information by an entity 
        operating a medicare information network.
  (c) Timetables for Adoption of Standards.--
          (1) Initial standards.--Not later than 18 months 
        after the date of the enactment of this section, the 
        Secretary shall adopt standards relating to the 
        information transactions, data elements of medicare 
        information and security described in subsections (a) 
        and (b).
          (2) Additions and modifications to standards.--
                  (A) In general.--The Secretary shall review 
                the standards adopted under this section and 
                shall adopt additional or modified standards, 
                that have been developed or modified by a 
                standard setting organization, as determined 
                appropriate, but not more frequently than once 
                every 12 months. Any addition or modification 
                to such standards shall be completed in a 
                manner which minimizes the disruption and cost 
                of compliance.
                  (B) Additions and modifications to code 
                sets.--
                          (i) In general.--The Secretary shall 
                        ensure that procedures exist for the 
                        routine maintenance, testing, 
                        enhancement, and expansion of code 
                        sets.
                          (ii) Additional rules.--If a code set 
                        is modified under this paragraph, the 
                        modified code set shall include 
                        instructions on how data elements of 
                        medicare information that were encoded 
                        prior to the modification may be 
                        converted or translated so as to 
                        preserve the informational value of the 
                        data elements that existed before the 
                        modification. Any modification to a 
                        code set under this paragraph shall be 
                        implemented in a manner that minimizes 
                        the disruption and cost of complying 
                        with such modification.
  (d) Requirements for Health Plans.--
          (1) In general.--If a person desires to conduct any 
        of the information transactions described in subsection 
        (b)(1) with a health plan as a standard transaction, 
        the health plan shall conduct such standard transaction 
        in a timely manner and the information transmitted or 
        received in connection with such transaction shall be 
        in the form of standard data elements of medicare 
        information.
          (2) Satisfaction of requirements.--A health plan may 
        satisfy the requirement imposed on such plan under 
        paragraph (1) by directly transmitting standard data 
        elements of medicare information or submitting 
        nonstandard data elements to a medicare information 
        network service for processing into standard data 
        elements and transmission.
          (3) Timetables for compliance with requirements.--Not 
        later than 24 months after the date on which standards 
        are adopted under subsections (a) and (b) with respect 
        to any type of information transaction or data element 
        of medicare information or with respect to security, a 
        health plan shall comply with the requirements of this 
        section with respect to such transaction or data 
        element.
          (4) Compliance with modified standards.--If the 
        Secretary adopts a modified standard under subsection 
        (a) or (b), a health plan shall be required to comply 
        with the modified standard at such time as the 
        Secretary determines appropriate taking into account 
        the time needed to comply due to the nature and extent 
        of the modification. However, the time determined 
        appropriate under the preceding sentence shall be not 
        earlier than the last day of the 180-day period 
        beginning on the date such modified standard is 
        adopted. The Secretary may extend the time for 
        compliance for small health plans, if the Secretary 
        determines such extension is appropriate.
  (e) General Penalty for Failure to Comply With Requirements 
and Standards.--
          (1) General penalty.--
                  (A) In general.--Except as provided in 
                paragraph (2), the Secretary shall impose on 
                any person that violates a requirement or 
                standard--
                          (i) with respect to medicare 
                        information transactions, data elements 
                        of medicare information, or security 
                        imposed under subsection (a) or (b); or
                          (ii) with respect to health plans 
                        imposed under subsection (d);
                a penalty of not more than $100 for each such 
                violation of a specific standard or 
                requirement, but the total amount imposed for 
                all such violations of a specific standard or 
                requirement during the calendar year shall not 
                exceed $25,000.
                  (B) Procedures.--The provisions of section 
                1128A (other than subsections (a) and (b) and 
                the second sentence of subsection (f)) shall 
                apply to the imposition of a civil money 
                penalty under this paragraph in the same manner 
                as such provisions apply to the imposition of a 
                penalty under such section 1128A.
                  (C) Denial of payment.--Except as provided in 
                paragraph (2), the Secretary may deny payment 
                under this title for an item or service 
                furnished by a person if the person fails to 
                comply with an applicable requirement or 
                standard for medicare information relating to 
                that item or service.
          (2) Limitations.--
                  (A) Noncompliance not discovered.--A penalty 
                may not be imposed under paragraph (1) if it is 
                established to the satisfaction of the 
                Secretary that the person liable for the 
                penalty did not know, and by exercising 
                reasonable diligence would not have known, that 
                such person failed to comply with the 
                requirement or standard described in paragraph 
                (1).
                  (B) Failures due to reasonable cause.--
                          (i) In general.--Except as provided 
                        in clause (ii), a penalty may not be 
                        imposed under paragraph (1) if--
                                  (I) the failure to comply was 
                                due to reasonable cause and not 
                                to willful neglect; and
                                  (II) the failure to comply is 
                                corrected during the 30-day 
                                period beginning on the first 
                                date the person liable for the 
                                penalty knew, or by exercising 
                                reasonable diligence would have 
                                known, that the failure to 
                                comply occurred.
                          (ii) Extension of period.--
                                  (I) No penalty.--The period 
                                referred to in clause (i)(II) 
                                may be extended as determined 
                                appropriate by the Secretary 
                                based on the nature and extent 
                                of the failure to comply.
                                  (II) Assistance.--If the 
                                Secretary determines that a 
                                health plan failed to comply 
                                because such plan was unable to 
                                comply, the Secretary may 
                                provide technical assistance to 
                                such plan during the period 
                                described in clause (i)(II). 
                                Such assistance shall be 
                                provided in any manner 
                                determined appropriate by the 
                                Secretary.
                  (C) Reduction.--In the case of a failure to 
                comply which is due to reasonable cause and not 
                to willful neglect, any penalty under paragraph 
                (1) that is not entirely waived under 
                subparagraph (B) may be waived to the extent 
                that the payment of such penalty would be 
                excessive relative to the compliance failure 
                involved.
  (f) Effect on State Law.--
          (1) General effect.--
                  (A) General rule.--Except as provided in 
                subparagraph (B), a provision, requirement, or 
                standard under this section shall supersede any 
                contrary provision of State law, including a 
                provision of State law that requires medical or 
                health plan records (including billing 
                information) to be maintained or transmitted in 
                written rather than electronic form.
                  (B) Exceptions.--A provision, requirement, or 
                standard under this section shall not supersede 
                a contrary provision of State law if the 
                Secretary determines that the provision of 
                State law should be continued for any reason, 
                including for reasons relating to prevention of 
                fraud and abuse or regulation of controlled 
                substances.
          (2) Public health reporting.--Nothing in this section 
        shall be construed to invalidate or limit the 
        authority, power, or procedures established under any 
        law providing for the reporting of disease or injury, 
        child abuse, birth, or death, public health 
        surveillance, or public health investigation or 
        intervention.
  (g) Medicare Information Advisory Committee.--
          (1) Establishment.--There is established a committee 
        to be known as the Medicare Information Advisory 
        Committee (in this subsection referred to as the 
        ``committee'').
          (2) Duties.--The committee shall--
                  (A) advise the Secretary in the development 
                of standards under this section; and
                  (B) be generally responsible for advising the 
                Secretary and the Congress on the status and 
                the future of the medicare information network.
          (3) Membership.--
                  (A) In general.--The committee shall consist 
                of 9 members of whom--
                          (i) 3 shall be appointed by the 
                        President;
                          (ii) 3 shall be appointed by the 
                        Speaker of the House of Representatives 
                        after consultation with the minority 
                        leader of the House of Representatives; 
                        and
                          (iii) 3 shall be appointed by the 
                        President pro tempore of the Senate 
                        after consultation with the minority 
                        leader of the Senate.
                The appointments of the members shall be made 
                not later than 60 days after the date of the 
                enactment of this section. The President shall 
                designate 1 member as the Chair.
                  (B) Expertise.--The membership of the 
                committee shall consist of individuals who are 
                of recognized standing and distinction in the 
                areas of information systems, information 
                networking and integration, consumer health, or 
                health care financial management, and who 
                possess the demonstrated capacity to discharge 
                the duties imposed on the committee.
                  (C) Terms.--Each member of the committee 
                shall be appointed for a term of 5 years, 
                except that the members first appointed shall 
                serve staggered terms such that the terms of 
                not more than 3 members expire at one time.
                  (D) Initial meeting.--Not later than 30 days 
                after the date on which a majority of the 
                members have been appointed, the committee 
                shall hold its first meeting.
          (4) Reports.--Not later than 1 year after the date of 
        the enactment of this section, and annually thereafter, 
        the committee shall submit to Congress and the 
        Secretary a report regarding--
                  (A) the extent to which entities using the 
                medicare information network are meeting the 
                standards adopted under this section and 
                working together to form an integrated network 
                that meets the needs of its users;
                  (B) the extent to which such entities are 
                meeting the security standards established 
                pursuant to this section and the types of 
                penalties assessed for noncompliance with such 
                standards;
                  (C) any problems that exist with respect to 
                implementation of the medicare information 
                network; and
                  (D) the extent to which timetables under this 
                section are being met.
        Reports made under this subsection shall be made 
        available to health care providers, health plans, and 
        other entities that use the medicare information 
        network to exchange medicare information.
  (h) Definitions.--For purposes of this section:
          (1) Code set.--The term ``code set'' means any set of 
        codes used for encoding data elements, such as tables 
        of terms, enrollment information, and encounter data.
          (2) Coordination of benefits.--The term 
        ``coordination of benefits'' means determining and 
        coordinating the financial obligations of health plans 
        when health care benefits are payable under such a plan 
        and under this title (including under a MedicarePlus 
        product).
          (3) Medicare information.--The term ``medicare 
        information'' means any information that relates to the 
        enrollment of individuals under this title (including 
        information relating to elections of MedicarePlus 
        products under section 1805) and the provision of 
        health benefits (including benefits provided under such 
        products) under this title.
          (4) Medicare information network.--The term 
        ``medicare information network'' means the medicare 
        information system that is formed through the 
        application of the requirements and standards 
        established under this section.
          (5) Medicare information network service.--The term 
        ``medicare information network service'' means a public 
        or private entity that--
                  (A) processes or facilitates the processing 
                of nonstandard data elements of medicare 
                information into standard data elements;
                  (B) provides the means by which persons may 
                meet the requirements of this section; or
                  (C) provides specific information processing 
                services.
          (6) Health plan.--The term ``health plan'' means a 
        plan which provides, or pays the cost of, health 
        benefits. Such term includes the following, or any 
        combination thereof:
                  (A) Part A or part B of this title, and 
                includes a MedicarePlus product.
                  (B) The medicaid program under title XIX and 
                the MediGrant program under title XXI.
                  (C) A medicare supplemental policy (as 
                defined in section 1882(g)(1)).
                  (D) Worker's compensation or similar 
                insurance.
                  (E) Automobile or automobile medical-payment 
                insurance.
                  (F) A long-term care policy, other than a 
                fixed indemnity policy.
                  (G) The Federal Employees Health Benefit Plan 
                under chapter 89 of title 5, United States 
                Code.
                  (H) An employee welfare benefit plan, as 
                defined in section 3(1) of the Employee 
                Retirement Income Security Act of 1974 (29 
                U.S.C. 1002(1)), but only to the extent the 
                plan is established or maintained for the 
                purpose of providing health benefits.
          (7) Individually identifiable medicare information.--
        The term ``individually identifiable medicare 
        information'' means medicare enrollment information, 
        including demographic information collected from an 
        individual, that--
                  (A) is created or received by a health care 
                provider, health plan, employer, or medicare 
                information network service, and
                  (B) identifies an individual.
          (8) Standard setting organization.--The term 
        ``standard setting organization'' means a standard 
        setting organization accredited by the American 
        National Standards Institute.
          (9) Standard transaction.--The term ``standard 
        transaction'' means, when referring to an information 
        transaction or to data elements of medicare 
        information, any transaction that meets the 
        requirements and implementation specifications adopted 
        by the Secretary under subsections (a) and (b).
          * * * * * * *

     Part A--Hospital Insurance Benefits for the Aged and Disabled

          * * * * * * *

         CONDITIONS OF AND LIMITATIONS ON PAYMENT FOR SERVICES

               Requirement of Requests and Certifications

  Sec. 1814. (a) * * *

                        Amount Paid to Providers

  (b) The amount paid to any provider of services (other than a 
hospice program providing hospice care, other than a rural 
primary care hospital providing inpatient rural primary care 
hospital services, and other than a home health agency with 
respect to durable medical equipment) with respect to services 
for which payment may be made under this part shall, subject to 
the provisions of sections [1813 and 1886] 1813, 1886, 1888, 
1888A, and 1894, be--
          (1) * * *
          * * * * * * *

     Payments to Home Health Agencies for Durable Medical Equipment

  (k) The amount paid to any home health agency with respect to 
durable medical equipment and prosthetics and orthotics for 
which payment may be made under this part shall be the amount 
described in section 1834(a)(1) and 1834(h), respectively.
          * * * * * * *

                 FEDERAL HOSPITAL INSURANCE TRUST FUND

  Sec. 1817. (a) * * *
          * * * * * * *
  (k) Each annual report provided in subsection (b)(2) shall 
include information regarding the annual rate of growth in 
program expenditures that would be required to maintain the 
financial solvency of the Trust Fund and the extent to which 
the provisions of section 1895 restrain the rate of growth of 
expenditures under this part in order to achieve such solvency.
          * * * * * * *

  REQUIREMENTS FOR, AND ASSURING QUALITY OF CARE IN, SKILLED NURSING 
                               FACILITIES

  Sec. 1819. (a) Skilled Nursing Facility Defined.--In this 
title, the term ``skilled nursing facility'' means an 
institution (or a distinct part of an institution) which--
          (1) * * *
          * * * * * * *
          [(3) meets the requirements for a skilled nursing 
        facility described in subsections (b), (c), and (d) of 
        this section.]
          (3)(A) is certified by the Secretary as meeting the 
        standards established under subsection (b), or (B) is a 
        State-certified facility (as defined in subsection 
        (d)).
  [(b) Requirements Relating to Provision of Services.--
          [(1) Quality of life.--
                  [(A) In general.--A skilled nursing facility 
                must care for its residents in such a manner 
                and in such an environment as will promote 
                maintenance or enhancement of the quality of 
                life of each resident.
                  [(B) Quality assessment and assurance.--A 
                skilled nursing facility must maintain a 
                quality assessment and assurance committee, 
                consisting of the director of nursing services, 
                a physician designated by the facility, and at 
                least 3 other members of the facility's staff, 
                which (i) meets at least quarterly to identify 
                issues with respect to which quality assessment 
                and assurance activities are necessary and (ii) 
                develops and implements appropriate plans of 
                action to correct identified quality 
                deficiencies. A State or the Secretary may not 
                require disclosure of the records of such 
                committee except insofar as such disclosure is 
                related to the compliance of such committee 
                with the requirements of this subparagraph.
          [(2) Scope of services and activities under plan of 
        care.--A skilled nursing facility must provide services 
        to attain or maintain the highest practicable physical, 
        mental, and psychosocial well-being of each resident, 
        in accordance with a written plan of care which--
                  [(A) describes the medical, nursing, and 
                psychosocial needs of the resident and how such 
                needs will be met;
                  [(B) is initially prepared, with the 
                participation to the extent practicable of the 
                resident or the resident's family or legal 
                representative, by a team which includes the 
                resident's attending physician and a registered 
                professional nurse with responsibility for the 
                resident; and
                  [(C) is periodically reviewed and revised by 
                such team after each assessment under paragraph 
                (3).
          [(3) Residents' assessment.--
                  [(A) Requirement.--A skilled nursing facility 
                must conduct a comprehensive, accurate, 
                standardized, reproducible assessment of each 
                resident's functional capacity, which 
                assessment--
                          [(i) describes the resident's 
                        capability to perform daily life 
                        functions and significant impairments 
                        in functional capacity;
                          [(ii) is based on a uniform minimum 
                        data set specified by the Secretary 
                        under subsection (f)(6)(A);
                          [(iii) uses an instrument which is 
                        specified by the State under subsection 
                        (e)(5); and
                          [(iv) includes the identification of 
                        medical problems.
                  [(B) Certification.--
                          [(i) In general.--Each such 
                        assessment must be conducted or 
                        coordinated (with the appropriate 
                        participation of health professionals) 
                        by a registered professional nurse who 
                        signs and certifies the completion of 
                        the assessment. Each individual who 
                        completes a portion of such an 
                        assessment shall sign and certify as to 
                        the accuracy of that portion of the 
                        assessment.
                          [(ii) Penalty for falsification.--
                                  [(I) An individual who 
                                willfully and knowingly 
                                certifies under clause (i) a 
                                material and false statement in 
                                a resident assessment is 
                                subject to a civil money 
                                penalty of not more than $1,000 
                                with respect to each 
                                assessment.
                                  [(II) An individual who 
                                willfully and knowingly causes 
                                another individual to certify 
                                under clause (i) a material and 
                                false statement in a resident 
                                assessment is subject to a 
                                civil money penalty of not more 
                                than $5,000 with respect to 
                                each assessment.
                                  [(III) The provisions of 
                                section 1128A (other than 
                                subsections (a) and (b)) shall 
                                apply to a civil money penalty 
                                under this clause in the same 
                                manner as such provisions apply 
                                to a penalty or proceeding 
                                under section 1128A(a).
                          [(iii) Use of independent 
                        assessors.--If a State determines, 
                        under a survey under subsection (g) or 
                        otherwise, that there has been a 
                        knowing and willful certification of 
                        false assessments under this paragraph, 
                        the State may require (for a period 
                        specified by the State) that resident 
                        assessments under this paragraph be 
                        conducted and certified by individuals 
                        who are independent of the facility and 
                        who are approved by the State.
                  [(C) Frequency.--
                          [(i) In general.--Such an assessment 
                        must be conducted--
                                  [(I) promptly upon (but no 
                                later than 14 days after the 
                                date of) admission for each 
                                individual admitted on or after 
                                October 1, 1990, and by not 
                                later than January 1, 1991, for 
                                each resident of the facility 
                                on that date;
                                  [(II) promptly after a 
                                significant change in the 
                                resident's physical or mental 
                                condition; and
                                  [(III) in no case less often 
                                than once every 12 months.
                          [(ii) Resident review.--The skilled 
                        nursing facility must examine each 
                        resident no less frequently than once 
                        every 3 months and, as appropriate, 
                        revise the resident's assessment to 
                        assure the continuing accuracy of the 
                        assessment.
                  [(D) Use.--The results of such an assessment 
                shall be used in developing, reviewing, and 
                revising the resident's plan of care under 
                paragraph (2).
                  [(E) Coordination.--Such assessments shall be 
                coordinated with any State-required 
                preadmission screening program to the maximum 
                extent practicable in order to avoid 
                duplicative testing and effort.
          [(4) Provision of services and activities.--
                  [(A) In general.--To the extent needed to 
                fulfill all plans of care described in 
                paragraph (2), a skilled nursing facility must 
                provide, directly or under arrangements (or, 
                with respect to dental services, under 
                agreements) with others for the provision of--
                          [(i) nursing services and specialized 
                        rehabilitative services to attain or 
                        maintain the highest practicable 
                        physical, mental, and psychosocial 
                        well-being of each resident;
                          [(ii) medically-related social 
                        services to attain or maintain the 
                        highest practicable physical, mental, 
                        and psychosocial well-being of each 
                        resident;
                          [(iii) pharmaceutical services 
                        (including procedures that assure the 
                        accurate acquiring, receiving, 
                        dispensing, and administering of all 
                        drugs and biologicals) to meet the 
                        needs of each resident;
                          [(iv) dietary services that assure 
                        that the meals meet the daily 
                        nutritional and special dietary needs 
                        of each resident;
                          [(v) an on-going program, directed by 
                        a qualified professional, of activities 
                        designed to meet the interests and the 
                        physical, mental, and psychosocial 
                        well-being of each resident;
                          [(vi) routine and emergency dental 
                        services to meet the needs of each 
                        resident; and
                          [(vii) treatment and services 
                        required by mentally ill and mentally 
                        retarded residents not otherwise 
                        provided or arranged for (or required 
                        to be provided or arranged for) by the 
                        State.
                The services provided or arranged by the 
                facility must meet professional standards of 
                quality. Nothing in clause (vi) shall be 
                construed as requiring a facility to provide or 
                arrange for dental services described in that 
                clause without additional charge.
                  [(B) Qualified persons providing services.--
                Services described in clauses (i), (ii), (iii), 
                (iv), and (vi) of subparagraph (A) must be 
                provided by qualified persons in accordance 
                with each resident's written plan of care.
                  [(C) Required nursing care.--
                          [(i) In general.--Except as provided 
                        in clause (ii), a skilled nursing 
                        facility must provide 24-hour licensed 
                        nursing service which is sufficient to 
                        meet nursing needs of its residents and 
                        must use the services of a registered 
                        professional nurse at least 8 
                        consecutive hours a day, 7 days a week.
                          [(ii) Exception.--To the extent that 
                        clause (i) may be deemed to require 
                        that a skilled nursing facility engage 
                        the services of a registered 
                        professional nurse for more than 40 
                        hours a week, the Secretary is 
                        authorized to waive such requirement if 
                        the Secretary finds that--
                                  [(I) the facility is located 
                                in a rural area and the supply 
                                of skilled nursing facility 
                                services in such area is not 
                                sufficient to meet the needs of 
                                individuals residing therein,
                                  [(II) the facility has one 
                                full-time registered 
                                professional nurse who is 
                                regularly on duty at such 
                                facility 40 hours a week,
                                  [(III) the facility either 
                                has only patients whose 
                                physicians have indicated 
                                (through physicians' orders or 
                                admission notes) that each such 
                                patient does not require the 
                                services of a registered nurse 
                                or a physician for a 48-hour 
                                period, or has made 
                                arrangements for a registered 
                                professional nurse or a 
                                physician to spend such time at 
                                such facility as may be 
                                indicated as necessary by the 
                                physician to provide necessary 
                                skilled nursing services on 
                                days when the regular full-time 
                                registered professional nurse 
                                is not on duty,
                                  [(IV) the Secretary provides 
                                notice of the waiver to the 
                                State long-term care ombudsman 
                                (established under section 
                                307(a)(12) of the Older 
                                Americans Act of 1965) and the 
                                protection and advocacy system 
                                in the State for the mentally 
                                ill and the mentally retarded, 
                                and
                                  [(V) the facility that is 
                                granted such a waiver notifies 
                                residents of the facility (or, 
                                where appropriate, the 
                                guardians or legal 
                                representatives of such 
                                residents) and members of their 
                                immediate families of the 
                                waiver.
                        A waiver under this subparagraph shall 
                        be subject to annual renewal.
          [(5) Required training of nurse aides.--
                  [(A) In general.--(i) Except as provided in 
                clause (ii), a skilled nursing facility must 
                not use on a full-time basis any individual as 
                a nurse aide in the facility on or after 
                October 1, 1990 for more than 4 months unless 
                the individual--
                          [(I) has completed a training and 
                        competency evaluation program, or a 
                        competency evaluation program, approved 
                        by the State under subsection 
                        (e)(1)(A), and
                          [(II) is competent to provide nursing 
                        or nursing-related services.
                          [(ii) A skilled nursing facility must 
                        not use on a temporary, per diem, 
                        leased, or on any basis other than as a 
                        permanent employee any individual as a 
                        nurse aide in the facility on or after 
                        January 1, 1991, unless the individual 
                        meets the requirements described in 
                        clause (i).
                  [(B) Offering competency evaluation programs 
                for current employees.--A skilled nursing 
                facility must provide, for individuals used as 
                a nurse aide by the facility as of January 1, 
                1990, for a competency evaluation program 
                approved by the State under subsection (e)(1) 
                and such preparation as may be necessary for 
                the individual to complete such a program by 
                October 1, 1990.
                  [(C) Competency.--The skilled nursing 
                facility must not permit an individual, other 
                than in a training and competency evaluation 
                program approved by the State, to serve as a 
                nurse aide or provide services of a type for 
                which the individual has not demonstrated 
                competency and must not use such an individual 
                as a nurse aide unless the facility has 
                inquired of any State registry established 
                under subsection (e)(2)(A) that the facility 
                believes will include information concerning 
                the individual.
                  [(D) Re-training required.--For purposes of 
                subparagraph (A), if, since an individual's 
                most recent completion of a training and 
                competency evaluation program, there has been a 
                continuous period of 24 consecutive months 
                during none of which the individual performed 
                nursing or nursing-related services for 
                monetary compensation, such individual shall 
                complete a new training and competency 
                evaluation program or a new competency 
                evaluation program.
                  [(E) Regular in-service education.--The 
                skilled nursing facility must provide such 
                regular performance review and regular in-
                service education as assures that individuals 
                used as nurse aides are competent to perform 
                services as nurse aides, including training for 
                individuals providing nursing and nursing-
                related services to residents with cognitive 
                impairments.
                  [(F) Nurse aide defined.--In this paragraph, 
                the term ``nurse aide'' means any individual 
                providing nursing or nursing-related services 
                to residents in a skilled nursing facility, but 
                does not include an individual--
                          [(i) who is a licensed health 
                        professional (as defined in 
                        subparagraph (G)) or a registered 
                        dietician, or
                          [(ii) who volunteers to provide such 
                        services without monetary compensation.
                  [(G) Licensed health professional defined.--
                In this paragraph, the term ``licensed health 
                professional'' means a physician, physician 
                assistant, nurse practitioner, physical, 
                speech, or occupational therapist, physical or 
                occupational therapy assistant, registered 
                professional nurse, licensed practical nurse, 
                licensed or certified social worker, registered 
                respiratory therapist, or certified respiratory 
                therapy technician.
          [(6) Physician supervision and clinical records.--A 
        skilled nursing facility must--
                  [(A) require that the medical care of every 
                resident be provided under the supervision of a 
                physician;
                  [(B) provide for having a physician available 
                to furnish necessary medical care in case of 
                emergency; and
                  [(C) maintain clinical records on all 
                residents, which records include the plans of 
                care (described in paragraph (2)) and the 
                residents' assessments (described in paragraph 
                (3)).
          [(7) Required social services.--In the case of a 
        skilled nursing facility with more than 120 beds, the 
        facility must have at least one social worker (with at 
        least a bachelor's degree in social work or similar 
        professional qualifications) employed full-time to 
        provide or assure the provision of social services.
  [(c) Requirements Relating to Residents' Rights.--
          [(1) General rights.--
                  [(A) Specified rights.--A skilled nursing 
                facility must protect and promote the rights of 
                each resident, including each of the following 
                rights:
                          [(i) Free choice.--The right to 
                        choose a personal attending physician, 
                        to be fully informed in advance about 
                        care and treatment, to be fully 
                        informed in advance of any changes in 
                        care or treatment that may affect the 
                        resident's well-being, and (except with 
                        respect to a resident adjudged 
                        incompetent) to participate in planning 
                        care and treatment or changes in care 
                        and treatment.
                          [(ii) Free from restraints.--The 
                        right to be free from physical or 
                        mental abuse, corporal punishment, 
                        involuntary seclusion, and any physical 
                        or chemical restraints imposed for 
                        purposes of discipline or convenience 
                        and not required to treat the 
                        resident's medical symptoms. Restraints 
                        may only be imposed--
                                  [(I) to ensure the physical 
                                safety of the resident or other 
                                residents, and
                                  [(II) only upon the written 
                                order of a physician that 
                                specifies the duration and 
                                circumstances under which the 
                                restraints are to be used 
                                (except in emergency 
                                circumstances specified by the 
                                Secretary until such an order 
                                could reasonably be obtained).
                          [(iii) Privacy.--The right to privacy 
                        with regard to accommodations, medical 
                        treatment, written and telephonic 
                        communications, visits, and meetings of 
                        family and of resident groups.
                          [(iv) Confidentiality.--The right to 
                        confidentiality of personal and 
                        clinical records and to access to 
                        current clinical records of the 
                        resident upon request by the resident 
                        or the resident's legal representative, 
                        within 24 hours (excluding hours 
                        occurring during a weekend or holiday) 
                        after making such a request.
                          [(v) Accommodation of needs.--The 
                        right--
                                  [(I) to reside and receive 
                                services with reasonable 
                                accommodation of individual 
                                needs and preferences, except 
                                where the health or safety of 
                                the individual or other 
                                residents would be endangered, 
                                and
                                  [(II) to receive notice 
                                before the room or roommate of 
                                the resident in the facility is 
                                changed.
                          [(vi) Grievances.--The right to voice 
                        grievances with respect to treatment or 
                        care that is (or fails to be) 
                        furnished, without discrimination or 
                        reprisal for voicing the grievances and 
                        the right to prompt efforts by the 
                        facility to resolve grievances the 
                        resident may have, including those with 
                        respect to the behavior of other 
                        residents.
                          [(vii) Participation in resident and 
                        family groups.--The right of the 
                        resident to organize and participate in 
                        resident groups in the facility and the 
                        right of the resident's family to meet 
                        in the facility with the families of 
                        other residents in the facility.
                          [(viii) Participation in other 
                        activities.--The right of the resident 
                        to participate in social, religious, 
                        and community activities that do not 
                        interfere with the rights of other 
                        residents in the facility.
                          [(ix) Examination of survey 
                        results.--The right to examine, upon 
                        reasonable request, the results of the 
                        most recent survey of the facility 
                        conducted by the Secretary or a State 
                        with respect to the facility and any 
                        plan of correction in effect with 
                        respect to the facility.
                          [(x) Refusal of certain transfers.--
                        The right to refuse a transfer to 
                        another room within the facility, if a 
                        purpose of the transfer is to relocate 
                        the resident from a portion of the 
                        facility that is a skilled nursing 
                        facility (for purposes of this title) 
                        to a portion of the facility that is 
                        not such a skilled nursing facility.
                          [(xi) Other rights.--Any other right 
                        established by the Secretary.
                Clause (iii) shall not be construed as 
                requiring the provision of a private room. A 
                resident's exercise of a right to refuse 
                transfer under clause (x) shall not affect the 
                resident's eligibility or entitlement to 
                benefits under this title or to medical 
                assistance under title XIX of this Act.
                  [(B) Notice of rights and services.--A 
                skilled nursing facility must--
                          [(i) inform each resident, orally and 
                        in writing at the time of admission to 
                        the facility, of the resident's legal 
                        rights during the stay at the facility;
                          [(ii) make available to each 
                        resident, upon reasonable request, a 
                        written statement of such rights (which 
                        statement is updated upon changes in 
                        such rights) including the notice (if 
                        any) of the State developed under 
                        section 1919(e)(6); and
                          [(iii) inform each other resident, in 
                        writing before or at the time of 
                        admission and periodically during the 
                        resident's stay, of services available 
                        in the facility and of related charges 
                        for such services, including any 
                        charges for services not covered under 
                        this title or by the facility's basic 
                        per diem charge.
                The written description of legal rights under 
                this subparagraph shall include a description 
                of the protection of personal funds under 
                paragraph (6) and a statement that a resident 
                may file a complaint with a State survey and 
                certification agency respecting resident abuse 
                and neglect and misappropriation of resident 
                property in the facility.
                  [(C) Rights of incompetent residents.--In the 
                case of a resident adjudged incompetent under 
                the laws of a State, the rights of the resident 
                under this title shall devolve upon, and, to 
                the extent judged necessary by a court of 
                competent jurisdiction, be exercised by, the 
                person appointed under State law to act on the 
                resident's behalf.
                  [(D) Use of Psychopharmacologic Drugs.--
                Psychopharmacologic drugs may be administered 
                only on the orders of a physician and only as 
                part of a plan (included in the written plan of 
                care described in paragraph (2)) designed to 
                eliminate or modify the symptoms for which the 
                drugs are prescribed and only if, at least 
                annually, an independent, external consultant 
                reviews the appropriateness of the drug plan of 
                each resident receiving such drugs. In 
                determining whether such a consultant is 
                qualified to conduct reviews under the 
                preceding sentence, the Secretary shall take 
                into account the needs of nursing facilities 
                under this title to have access to the services 
                of such a consultant on a timely basis.
                  [(E) Information respecting advance 
                directives.--A skilled nursing facility must 
                comply with the requirement of section 1866(f) 
                (relating to maintaining written policies and 
                procedures respecting advance directives).
          [(2) Transfer and discharge rights.--
                  [(A) In general.--A skilled nursing facility 
                must permit each resident to remain in the 
                facility and must not transfer or discharge the 
                resident from the facility unless--
                          [(i) the transfer or discharge is 
                        necessary to meet the resident's 
                        welfare and the resident's welfare 
                        cannot be met in the facility;
                          [(ii) the transfer or discharge is 
                        appropriate because the resident's 
                        health has improved sufficiently so the 
                        resident no longer needs the services 
                        provided by the facility;
                          [(iii) the safety of individuals in 
                        the facility is endangered;
                          [(iv) the health of individuals in 
                        the facility would otherwise be 
                        endangered;
                          [(v) the resident has failed, after 
                        reasonable and appropriate notice, to 
                        pay (or to have paid under this title 
                        or title XIX on the resident's behalf) 
                        for a stay at the facility; or
                          [(vi) the facility ceases to operate.
                In each of the cases described in clauses (i) 
                through (v), the basis for the transfer or 
                discharge must be documented in the resident's 
                clinical record. In the cases described in 
                clauses (i) and (ii), the documentation must be 
                made by the resident's physician, and in the 
                cases described in clauses (iii) and (iv) the 
                documentation must be made by a physician.
                  [(B) Pre-transfer and pre-discharge notice.--
                          [(i) In general.--Before effecting a 
                        transfer or discharge of a resident, a 
                        skilled nursing facility must--
                                  [(I) notify the resident 
                                (and, if known, a family member 
                                of the resident or legal 
                                representative) of the transfer 
                                or discharge and the reasons 
                                therefor,
                                  [(II) record the reasons in 
                                the resident's clinical record 
                                (including any documentation 
                                required under subparagraph 
                                (A)), and
                                  [(III) include in the notice 
                                the items described in clause 
                                (iii).
                          [(ii) Timing of notice.--The notice 
                        under clause (i)(I) must be made at 
                        least 30 days in advance of the 
                        resident's transfer or discharge 
                        except--
                                  [(I) in a case described in 
                                clause (iii) or (iv) of 
                                subparagraph (A);
                                  [(II) in a case described in 
                                clause (ii) of subparagraph 
                                (A), where the resident's 
                                health improves sufficiently to 
                                allow a more immediate transfer 
                                or discharge;
                                  [(III) in a case described in 
                                clause (i) of subparagraph (A), 
                                where a more immediate transfer 
                                or discharge is necessitated by 
                                the resident's urgent medical 
                                needs; or
                                  [(IV) in a case where a 
                                resident has not resided in the 
                                facility for 30 days.
                        In the case of such exceptions, notice 
                        must be given as many days before the 
                        date of the transfer or discharge as is 
                        practicable.
                          [(iii) Items included in notice.--
                        Each notice under clause (i) must 
                        include--
                                  [(I) for transfers or 
                                discharges effected on or after 
                                October 1, 1990, notice of the 
                                resident's right to appeal the 
                                transfer or discharge under the 
                                State process established under 
                                subsection (e)(3); and
                                  [(II) the name, mailing 
                                address, and telephone number 
                                of the State long-term care 
                                ombudsman (established under 
                                title III or VII of the Older 
                                Americans Act of 1965 in 
                                accordance with section 712 of 
                                the Act).
                  [(C) Orientation.--A skilled nursing facility 
                must provide sufficient preparation and 
                orientation to residents to ensure safe and 
                orderly transfer or discharge from the 
                facility.
          [(3) Access and visitation rights.--A skilled nursing 
        facility must--
                  [(A) permit immediate access to any resident 
                by any representative of the Secretary, by any 
                representative of the State, by an ombudsman 
                described in paragraph (2)(B)(iii)(II), or by 
                the resident's individual physician;
                  [(B) permit immediate access to a resident, 
                subject to the resident's right to deny or 
                withdraw consent at any time, by immediate 
                family or other relatives of the resident;
                  [(C) permit immediate access to a resident, 
                subject to reasonable restrictions and the 
                resident's right to deny or withdraw consent at 
                any time, by others who are visiting with the 
                consent of the resident;
                  [(D) permit reasonable access to a resident 
                by any entity or individual that provides 
                health, social, legal, or other services to the 
                resident, subject to the resident's right to 
                deny or withdraw consent at any time; and
                  [(E) permit representatives of the State 
                ombudsman (described in paragraph 
                (2)(B)(iii)(II)), with the permission of the 
                resident (or the resident's legal 
                representative) and consistent with State law, 
                to examine a resident's clinical records.
          [(4) Equal access to quality care.--A skilled nursing 
        facility must establish and maintain identical policies 
        and practices regarding transfer, discharge, and 
        covered services under this title for all individuals 
        regardless of source of payment.
          [(5) Admissions Policy.--
                  [(A) Admissions.--With respect to admissions 
                practices, a skilled nursing facility must--
                          [(i)(I) not require individuals 
                        applying to reside or residing in the 
                        facility to waive their rights to 
                        benefits under this title or under a 
                        State plan under title XIX, (II) not 
                        require oral or written assurance that 
                        such individuals are not eligible for, 
                        or will not apply for, benefits under 
                        this title or such a State plan, and 
                        (III) prominently display in the 
                        facility and provide to such 
                        individuals written information about 
                        how to apply for and use such benefits 
                        and how to receive refunds for previous 
                        payments covered by such benefits; and
                          [(ii) not require a third party 
                        guarantee of payment to the facility as 
                        a condition of admission (or expedited 
                        admission) to, or continued stay in, 
                        the facility.
                  [(B) Construction.--
                          [(i) No preemption of stricter 
                        standards.-- Subparagraph (A) shall not 
                        be construed as preventing States or 
                        political subdivisions therein from 
                        prohibiting, under State or local law, 
                        the discrimination against individuals 
                        who are entitled to medical assistance 
                        under this title with respect to 
                        admissions practices of skilled nursing 
                        facilities.
                          [(ii) Contracts with legal 
                        representatives.-- Subparagraph (A)(ii) 
                        shall not be construed as preventing a 
                        facility from requiring an individual, 
                        who has legal access to a resident's 
                        income or resources available to pay 
                        for care in the facility, to sign a 
                        contract (without incurring personal 
                        financial liability) to provide payment 
                        from the resident's income or resources 
                        for such care.
          [(6) Protection of resident funds.--
                  [(A) In general.--The skilled nursing 
                facility--
                          [(i) may not require residents to 
                        deposit their personal funds with the 
                        facility, and
                          [(ii) upon the written authorization 
                        of the resident, must hold, safeguard, 
                        and account for such personal funds 
                        under a system established and 
                        maintained by the facility in 
                        accordance with this paragraph.
                  [(B) Management of personal funds.--Upon 
                written authorization of a resident under 
                subparagraph (A)(ii), the facility must manage 
                and account for the personal funds of the 
                resident deposited with the facility as 
                follows:
                          [(i) Deposit.--The facility must 
                        deposit any amount of personal funds in 
                        excess of $100 with respect to a 
                        resident in an interest bearing account 
                        (or accounts) that is separate from any 
                        of the facility's operating accounts 
                        and credits all interest earned on such 
                        separate account to such account. With 
                        respect to any other personal funds, 
                        the facility must maintain such funds 
                        in a non-interest bearing account or 
                        petty cash fund.
                          [(ii) Accounting and records.--The 
                        facility must assure a full and 
                        complete separate accounting of each 
                        such resident's personal funds, 
                        maintain a written record of all 
                        financial transactions involving the 
                        personal funds of a resident deposited 
                        with the facility, and afford the 
                        resident (or a legal representative of 
                        the resident) reasonable access to such 
                        record.
                          [(iii) Conveyance upon death.--Upon 
                        the death of a resident with such an 
                        account, the facility must convey 
                        promptly the resident's personal funds 
                        (and a final accounting of such funds) 
                        to the individual administering the 
                        resident's estate.
                  [(C) Assurance of financial security.--The 
                facility must purchase a surety bond, or 
                otherwise provide assurance satisfactory to the 
                Secretary, to assure the security of all 
                personal funds of residents deposited with the 
                facility.
                  [(D) Limitation on charges to personal 
                funds.--The facility may not impose a charge 
                against the personal funds of a resident for 
                any item or service for which payment is made 
                under this title or title XIX.
  [(d) Requirements Relating to Administration and Other 
Matters.--
          [(1) Administration.--
                  [(A) In general.--A skilled nursing facility 
                must be administered in a manner that enables 
                it to use its resources effectively and 
                efficiently to attain or maintain the highest 
                practicable physical mental, and psychosocial 
                well-being of each resident (consistent with 
                requirements established under subsection 
                (f)(5)).
                  [(B) Required notices.--If a change occurs 
                in--
                          [(i) the persons with an ownership or 
                        control interest (as defined in section 
                        1124(a)(3)) in the facility,
                          [(ii) the persons who are officers, 
                        directors, agents, or managing 
                        employees (as defined in section 
                        1126(b)) of the facility,
                          [(iii) the corporation, association, 
                        or other company responsible for the 
                        management of the facility, or
                          [(iv) the individual who is the 
                        administrator or director of nursing of 
                        the facility,--the skilled nursing 
                        facility must provide notice to the 
                        State agency responsible for the 
                        licensing of the facility, at the time 
                        of the change, of the change and of the 
                        identity of each new person, company, 
                        or individual described in the 
                        respective clause.
                  [(C) Skilled nursing facility 
                administrator.--The administrator of a skilled 
                nursing facility must meet standards 
                established by the Secretary under subsection 
                (f)(4).
          [(2) Licensing and life safety code.--
                  [(A) Licensing.--A skilled nursing facility 
                must be licensed under applicable State and 
                local law.
                  [(B) Life safety code.--A skilled nursing 
                facility must meet such provisions of such 
                edition (as specified by the Secretary in 
                regulation) of the Life Safety Code of the 
                National Fire Protection Association as are 
                applicable to nursing homes; except that--
                          [(i) the Secretary may waive, for 
                        such periods as he deems appropriate, 
                        specific provisions of such Code which 
                        if rigidly applied would result in 
                        unreasonable hardship upon a facility, 
                        but only if such waiver would not 
                        adversely affect the health and safety 
                        of residents or personnel, and
                          [(ii) the provisions of such Code 
                        shall not apply in any State if the 
                        Secretary finds that in such State 
                        there is in effect a fire and safety 
                        code, imposed by State law, which 
                        adequately protects residents of and 
                        personnel in skilled nursing 
                        facilities.
          [(3) Sanitary and infection control and physical 
        environment.--A skilled nursing facility must--
                  [(A) establish and maintain an infection 
                control program designed to provide a safe, 
                sanitary, and comfortable environment in which 
                residents reside and to help prevent the 
                development and transmission of disease and 
                infection, and
                  [(B) be designed, constructed, equipped, and 
                maintained in a manner to protect the health 
                and safety of residents, personnel, and the 
                general public.
          [(4) Miscellaneous.--
                  [(A) Compliance with federal, state, and 
                local laws and professional standards.--A 
                skilled nursing facility must operate and 
                provide services in compliance with all 
                applicable Federal, State, and local laws and 
                regulations (including the requirements of 
                section 1124) and with accepted professional 
                standards and principles which apply to 
                professionals providing services in such a 
                facility.
                  [(B) Other.--A skilled nursing facility must 
                meet such other requirements relating to the 
                health, safety, and well- being of residents or 
                relating to the physical facilities thereof as 
                the Secretary may find necessary.
  [(e) State Requirements Relating to Skilled Nursing Facility 
Requirements.--The requirements, referred to in section 
1864(d), with respect to a State are as follows:
          [(1) Specification and review of nurse aide training 
        and competency evaluation programs and of nurse aide 
        competency evaluation programs.--The State must--
                  [(A) by not later than January 1, 1989, 
                specify those training and competency 
                evaluation programs, and those competency 
                evaluation programs, that the State approves 
                for purposes of subsection (b)(5) and that meet 
                the requirements established under subsection 
                (f)(2), and
                  [(B) by not later than January 1, 1990, 
                provide for the review and reapproval of such 
                programs, at a frequency and using a 
                methodology consistent with the requirements 
                established under subsection (f)(2)(A)(iii).
        The failure of the Secretary to establish requirements 
        under subsection (f)(2) shall not relieve any State of 
        its responsibility under this paragraph.
          [(2) Nurse aide registry.--
                  [(A) In general.--By not later than January 
                1, 1989, the State shall establish and maintain 
                a registry of all individuals who have 
                satisfactorily completed a nurse aide training 
                and competency evaluation program, or a nurse 
                aide competency evaluation program, approved 
                under paragraph (1) in the State, or any 
                individual described in subsection 
                (f)(2)(B)(ii) or in subparagraph (B), (C), or 
                (D) of section 6901(b)(4) of the Omnibus Budget 
                Reconciliation Act of 1989.
                  [(B) Information in registry.--The registry 
                under subparagraph (A) shall provide (in 
                accordance with regulations of the Secretary) 
                for the inclusion of specific documented 
                findings by a State under subsection (g)(1)(C) 
                of resident neglect or abuse or 
                misappropriation of resident property involving 
                an individual listed in the registry, as well 
                as any brief statement of the individual 
                disputing the findings, but shall not include 
                any allegations of resident abuse or neglect or 
                misappropriation of resident property that are 
                not specifically documented by the State under 
                such subsection. The State shall make available 
                to the public information in the registry. In 
                the case of inquiries to the registry 
                concerning an individual listed in the 
                registry, any information disclosed concerning 
                such a finding shall also include disclosure of 
                any such statement in the registry relating to 
                the finding or a clear and accurate summary of 
                such a statement.
                  [(C) Prohibition against charges.--A State 
                may not impose any charges on a nurse aide 
                relating to the registry established and 
                maintained under subparagraph (A).
          [(3) State appeals process for transfers and 
        discharges.--The State, for transfers and discharges 
        from skilled nursing facilities effected on or after 
        October 1, 1989, must provide for a fair mechanism for 
        hearing appeals on transfers and discharges of 
        residents of such facilities. Such mechanism must meet 
        the guidelines established by the Secretary under 
        subsection (f)(3); but the failure of the Secretary to 
        establish such guidelines shall not relieve any State 
        of its responsibility to provide for such a fair 
        mechanism.
          [(4) Skilled nursing facility administrator 
        standards.--By not later than January 1, 1990, the 
        State must have implemented and enforced the skilled 
        nursing facility administrator standards developed 
        under subsection (f)(4) respecting the qualification of 
        administrators of skilled nursing facilities.
          [(5) Specification of resident assessment 
        instrument.--Effective July 1, 1990, the State shall 
        specify the instrument to be used by nursing facilities 
        in the State in complying with the requirement of 
        subsection (b)(3)(A)(iii). Such instrument shall be--
                  [(A) one of the instruments designated under 
                subsection (f)(6)(B), or
                  [(B) an instrument which the Secretary has 
                approved as being consistent with the minimum 
                data set of core elements, common definitions, 
                and utilization guidelines specified by the 
                Secretary under subsection (f)(6)(A).
  [(f) Responsibilities of Secretary Relating to Skilled 
Nursing Facility Requirements.--
          [(1) General responsibility.--It is the duty and 
        responsibility of the Secretary to assure that 
        requirements which govern the provision of care in 
        skilled nursing facilities under this title, and the 
        enforcement of such requirements, are adequate to 
        protect the health, safety, welfare, and rights of 
        residents and to promote the effective and efficient 
        use of public moneys.
          [(2) Requirements for nurse aide training and 
        competency evaluation programs and for nurse aide 
        competency evaluation programs.--
                  [(A) In general.--For purposes of subsections 
                (b)(5) and (e)(1)(A), the Secretary shall 
                establish, by not later than September 1, 
                1988--
                          [(i) requirements for the approval of 
                        nurse aide training and competency 
                        evaluation programs, including 
                        requirements relating to (I) the areas 
                        to be covered in such a program 
                        (including at least basic nursing 
                        skills, personal care skills, 
                        recognition of mental health and social 
                        service needs, care of cognitively 
                        impaired residents, basic restorative 
                        services, and residents' rights) and 
                        content of the curriculum, (II) minimum 
                        hours of initial and ongoing training 
                        and retraining (including not less than 
                        75 hours in the case of initial 
                        training), (III) qualifications of 
                        instructors, and (IV) procedures for 
                        determination of competency;
                          [(ii) requirements for the approval 
                        of nurse aide competency evaluation 
                        programs, including requirement 
                        relating to the areas to be covered in 
                        such a program, including at least 
                        basic nursing skills, personal care 
                        skills, recognition of mental health 
                        and social service needs, care of 
                        cognitively impaired residents, basic 
                        restorative services, residents' 
                        rights, and procedures for 
                        determination of competency;
                          [(iii) requirements respecting the 
                        minimum frequency and methodology to be 
                        used by a State in reviewing such 
                        programs' compliance with the 
                        requirements for such programs; and
                          [(iv) requirements, under both such 
                        programs, that--
                                  [(I) provide procedures for 
                                determining competency that 
                                permit a nurse aide, at the 
                                nurse aide's option, to 
                                establish competency through 
                                procedures or methods other 
                                than the passing of a written 
                                examination and to have the 
                                competency evaluation conducted 
                                at the nursing facility at 
                                which the aide is (or will be) 
                                employed (unless the facility 
                                is described in subparagraph 
                                (B)(iii)(I)),
                                  [(II) prohibit the imposition 
                                on a nurse aide who is employed 
                                by (or who has received an 
                                offer of employment from) a 
                                facility on the date on which 
                                the aide begins either such 
                                program of any charges 
                                (including any charges for 
                                textbooks and other required 
                                course materials and any 
                                charges for the competency 
                                evaluation) for either such 
                                program, and
                                  [(III) in the case of a nurse 
                                aide not described in subclause 
                                (II) who is employed by (or who 
                                has received an offer of 
                                employment from) a facility not 
                                later than 12 months after 
                                completing either such program, 
                                the State shall provide for the 
                                reimbursement of costs incurred 
                                in completing such program on a 
                                prorata basis during the period 
                                in which the nurse aide is so 
                                employed.
                  [(B) Approval of certain programs.--Such 
                requirements--
                          [(i) may permit approval of programs 
                        offered by or in facilities (subject to 
                        clause (iii)), as well as outside 
                        facilities (including employee 
                        organizations), and of programs in 
                        effect on the date of the enactment of 
                        this section;
                          [(ii) shall permit a State to find 
                        that an individual who has completed 
                        (before July 1, 1989) a nurse aide 
                        training and competency evaluation 
                        program shall be deemed to have 
                        completed such a program approved under 
                        subsection (b)(5) if the State 
                        determines that, at the time the 
                        program was offered, the program met 
                        the requirements for approval under 
                        such paragraph; and
                          [(iii) shall prohibit approval of 
                        such a program--
                                  [(I) offered by or in a 
                                skilled nursing facility which, 
                                within the previous 2 years--
                                          [(a) has operated 
                                        under a waiver under 
                                        subsection 
                                        (b)(4)(C)(ii)(II);
                                          [(b) has been subject 
                                        to an extended (or 
                                        partial extended) 
                                        survey under subsection 
                                        (g)(2)(B)(i) or section 
                                        1919(g)(2)(B)(i), 
                                        unless the survey shows 
                                        that the facility is in 
                                        compliance with the 
                                        requirements of 
                                        subsections (b), (c), 
                                        and (d) of this 
                                        section; or
                                          [(c) has been 
                                        assessed a civil money 
                                        penalty described in 
                                        subsection 
                                        (h)(2)(B)(ii) or 
                                        section 
                                        1919(h)(2)(A)(ii) of 
                                        not less than $5,000, 
                                        or has been subject to 
                                        a remedy described in 
                                        clause (i) or (iii) of 
                                        subsection (h)(2)(B), 
                                        subsection (h)(4), 
                                        section 
                                        1919(h)(1)(B)(i), or in 
                                        clause (i), (iii), or 
                                        (iv) of section 
                                        1919(h)(2)(A), or
                                  [(II) offered by or in a 
                                skilled nursing facility unless 
                                the State makes the 
                                determination, upon an 
                                individual's completion of the 
                                program, that the individual is 
                                competent to provide nursing 
                                and nursing-related services in 
                                skilled nursing facilities.
                        A State may not delegate (through 
                        subcontract or otherwise) its 
                        responsibility under clause (iii)(II) 
                        to the skilled nursing facility.
          [(3) Federal guidelines for state appeals process for 
        transfers and discharges.--For purposes of subsections 
        (c)(2)(B)(iii)(I) and (e)(3), by not later than October 
        1, 1988, the Secretary shall establish guidelines for 
        minimum standards which State appeals processes under 
        subsection (e)(3) must meet to provide a fair mechanism 
        for hearing appeals on transfers and discharges of 
        residents from skilled nursing facilities.
          [(4) Secretarial standards for qualification of 
        administrators.--For purposes of subsections (d)(1)(C) 
        and (e)(4), the Secretary shall develop, by not later 
        than March 1, 1989, standards to be applied in assuring 
        the qualifications of administrators of skilled nursing 
        facilities.
          [(5) Criteria for administration.-- The Secretary 
        shall establish criteria for assessing a skilled 
        nursing facility's compliance with the requirement of 
        subsection (d)(1) with respect to--
                  [(A) its governing body and management,
                  [(B) agreements with hospitals regarding 
                transfers of residents to and from the 
                hospitals and to and from other skilled nursing 
                facilities,
                  [(C) disaster preparedness,
                  [(D) direction of medical care by a 
                physician,
                  [(E) laboratory and radiological services,
                  [(F) clinical records, and
                  [(G) resident and advocate participation.
          [(6) Specification of resident assessment data set 
        and instruments.--The Secretary shall--
                  [(A) not later than January 1, 1989, specify 
                a minimum data set of core elements and common 
                definitions for use by nursing facilities in 
                conducting the assessments required under 
                subsection (b)(3), and establish guidelines for 
                utilization of the data set; and
                  [(B) by not later than April 1, 1990, 
                designate one or more instruments which are 
                consistent with the specification made under 
                subparagraph (A) and which a State may specify 
                under subsection (e)(5)(A) for use by nursing 
                facilities in complying with the requirements 
                of subsection (b)(3)(A)(iii).
          [(7) List of items and services furnished in skilled 
        nursing facilities not chargeable to the personal funds 
        of a resident.--
                  [(A) Regulations required.-- Pursuant to the 
                requirement of section 21(b) of the Medicare-
                Medicaid Anti-Fraud and Abuse Amendments of 
                1977, the Secretary shall issue regulations, on 
                or before the first day of the seventh month to 
                begin after the date of enactment of this 
                section, that define those costs which may be 
                charged to the personal funds of residents in 
                skilled nursing facilities who are individuals 
                receiving benefits under this part and those 
                costs which are to be included in the 
                reasonable cost (or other payment amount) under 
                this title for extended care services.
                  [(B) Rule if failure to publish 
                regulations.--If the Secretary does not issue 
                the regulations under subparagraph (A) on or 
                before the date required in such subparagraph, 
                in the case of a resident of a skilled nursing 
                facility who is eligible to receive benefits 
                under this part, the costs which may not be 
                charged to the personal funds of such resident 
                (and for which payment is considered to be made 
                under this title) shall include, at a minimum, 
                the costs for routine personal hygiene items 
                and services furnished by the facility.
  [(g) Survey and Certification Process.--
          [(1) State and federal responsibility.--
                  [(A) In general.--Pursuant to an agreement 
                under section 1864, each State shall be 
                responsible for certifying, in accordance with 
                surveys conducted under paragraph (2), the 
                compliance of skilled nursing facilities (other 
                than facilities of the State) with the 
                requirements of subsections (b), (c), and (d). 
                The Secretary shall be responsible for 
                certifying, in accordance with surveys 
                conducted under paragraph (2), the compliance 
                of State skilled nursing facilities with the 
                requirements of such subsections.
                  [(B) Educational program.--Each State shall 
                conduct periodic educational programs for the 
                staff and residents (and their representatives) 
                of skilled nursing facilities in order to 
                present current regulations, procedures, and 
                policies under this section.
                  [(C) Investigation of allegations of resident 
                neglect and abuse and misappropriation of 
                resident property.--The State shall provide, 
                through the agency responsible for surveys and 
                certification of nursing facilities under this 
                subsection, for a process for the receipt and 
                timely review and investigation of allegations 
                of neglect and abuse and misappropriation of 
                resident property by a nurse aide of a resident 
                in a nursing facility or by another individual 
                used by the facility in providing services to 
                such a resident. The State shall, after 
                providing the individual involved with a 
                written notice of the allegations (including a 
                statement of the availability of a hearing for 
                the individual to rebut the allegations) and 
                the opportunity for a hearing on the record, 
                make a written finding as to the accuracy of 
                the allegations. If the State finds that a 
                nurse aide has neglected or abused a resident 
                or misappropriated resident property in a 
                facility, the State shall notify the nurse aide 
                and the registry of such finding. If the State 
                finds that any other individual used by the 
                facility has neglected or abused a resident or 
                misappropriated resident property in a 
                facility, the State shall notify the 
                appropriate licensure authority. A State shall 
                not make a finding that an individual has 
                neglected a resident if the individual 
                demonstrates that such neglect was caused by 
                factors beyond the control of the individual.
                  [(D) Construction.-- The failure of the 
                Secretary to issue regulations to carry out 
                this subsection shall not relieve a State of 
                its responsibility under this subsection.
          [(2) Surveys.--
                  [(A) Standard survey.--
                          [(i) In general.--Each skilled 
                        nursing facility shall be subject to a 
                        standard survey, to be conducted 
                        without any prior notice to the 
                        facility. Any individual who notifies 
                        (or causes to be notified) a skilled 
                        nursing facility of the time or date on 
                        which such a survey is scheduled to be 
                        conducted is subject to a civil money 
                        penalty of not to exceed $2,000. The 
                        provisions of section 1128A (other than 
                        subsections (a) and (b)) shall apply to 
                        a civil money penalty under the 
                        previous sentence in the same manner as 
                        such provisions apply to a penalty or 
                        proceeding under section 1128A(a). The 
                        Secretary shall review each State's 
                        procedures for the scheduling and 
                        conduct of standard surveys to assure 
                        that the State has taken all reasonable 
                        steps to avoid giving notice of such a 
                        survey through the scheduling 
                        procedures and the conduct of the 
                        surveys themselves.
                          [(ii) Contents.--Each standard survey 
                        shall include, for a case-mix 
                        stratified sample of residents--
                                  [(I) a survey of the quality 
                                of care furnished, as measured 
                                by indicators of medical, 
                                nursing, and rehabilitative 
                                care, dietary and nutrition 
                                services, activities and social 
                                participation, and sanitation, 
                                infection control, and the 
                                physical environment,
                                  [(II) written plans of care 
                                provided under subsection 
                                (b)(2) and an audit of the 
                                residents' assessments under 
                                subsection (b)(3) to determine 
                                the accuracy of such 
                                assessments and the adequacy of 
                                such plans of care, and
                                  [(III) a review of compliance 
                                with residents' rights under 
                                subsection (c).
                          [(iii) Frequency.--
                                  [(I) In general.--Each 
                                skilled nursing facility shall 
                                be subject to a standard survey 
                                not later than 15 months after 
                                the date of the previous 
                                standard survey conducted under 
                                this subparagraph. The 
                                Statewide average interval 
                                between standard surveys of 
                                skilled nursing facilities 
                                under this subsection shall not 
                                exceed 12 months.
                                  [(II) Special surveys.--If 
                                not otherwise conducted under 
                                subclause (I), a standard 
                                survey (or an abbreviated 
                                standard survey) may be 
                                conducted within 2 months of 
                                any change of ownership, 
                                administration, management of a 
                                skilled nursing facility, or 
                                the director of nursing in 
                                order to determine whether the 
                                change has resulted in any 
                                decline in the quality of care 
                                furnished in the facility.
                  [(B) Extended surveys.--
                          [(i) In general.--Each skilled 
                        nursing facility which is found, under 
                        a standard survey, to have provided 
                        substandard quality of care shall be 
                        subject to an extended survey. Any 
                        other facility may, at the Secretary's 
                        or State's discretion, be subject to 
                        such an extended survey (or a partial 
                        extended survey).
                          [(ii) Timing.--The extended survey 
                        shall be conducted immediately after 
                        the standard survey (or, if not 
                        practicable, not later than 2 weeks 
                        after the date of completion of the 
                        standard survey).
                          [(iii) Contents.--In such an extended 
                        survey, the survey team shall review 
                        and identify the policies and 
                        procedures which produced such 
                        substandard quality of care and shall 
                        determine whether the facility has 
                        complied with all the requirements 
                        described in subsections (b), (c), and 
                        (d). Such review shall include an 
                        expansion of the size of the sample of 
                        residents' assessments reviewed and a 
                        review of the staffing, of in-service 
                        training, and, if appropriate, of 
                        contracts with consultants.
                          [(iv) Construction.--Nothing in this 
                        paragraph shall be construed as 
                        requiring an extended or partial 
                        extended survey as a prerequisite to 
                        imposing a sanction against a facility 
                        under subsection (h) on the basis of 
                        findings in a standard survey.
                  [(C) Survey protocol.-- Standard and extended 
                surveys shall be conducted--
                          [(i) based upon a protocol which the 
                        Secretary has developed, tested, and 
                        validated by not later than January 1, 
                        1990, and
                          [(ii) by individuals, of a survey 
                        team, who meet such minimum 
                        qualifications as the Secretary 
                        establishes by not later than such 
                        date.
                The failure of the Secretary to develop, test, 
                or validate such protocols or to establish such 
                minimum qualifications shall not relieve any 
                State of its responsibility (or the Secretary 
                of the Secretary's responsibility) to conduct 
                surveys under this subsection.
                  [(D) Consistency of surveys.--Each State and 
                the Secretary shall implement programs to 
                measure and reduce inconsistency in the 
                application of survey results among surveyors.
                  [(E) Survey teams.--
                          [(i) In general.--Surveys under this 
                        subsection shall be conducted by a 
                        multidisciplinary team of professionals 
                        (including a registered professional 
                        nurse).
                          [(ii) Prohibition of conflicts of 
                        interest.--A State may not use as a 
                        member of a survey team under this 
                        subsection an individual who is serving 
                        (or has served within the previous 2 
                        years) as a member of the staff of, or 
                        as a consultant to, the facility 
                        surveyed respecting compliance with the 
                        requirements of subsections (b), (c), 
                        and (d), or who has a personal or 
                        familial financial interest in the 
                        facility being surveyed.
                          [(iii) Training.--The Secretary shall 
                        provide for the comprehensive training 
                        of State and Federal surveyors in the 
                        conduct of standard and extended 
                        surveys under this subsection, 
                        including the auditing of resident 
                        assessments and plans of care. No 
                        individual shall serve as a member of a 
                        survey team unless the individual has 
                        successfully completed a training and 
                        testing program in survey and 
                        certification techniques that has been 
                        approved by the Secretary.
          [(3) Validation surveys.--
                  [(A) In general.--The Secretary shall conduct 
                onsite surveys of a representative sample of 
                skilled nursing facilities in each State, 
                within 2 months of the date of surveys 
                conducted under paragraph (2) by the State, in 
                a sufficient number to allow inferences about 
                the adequacies of each State's surveys 
                conducted under paragraph (2). In conducting 
                such surveys, the Secretary shall use the same 
                survey protocols as the State is required to 
                use under paragraph (2). If the State has 
                determined that an individual skilled nursing 
                facility meets the requirements of subsections 
                (b), (c), and (d), but the Secretary determines 
                that the facility does not meet such 
                requirements, the Secretary's determination as 
                to the facility's noncompliance with such 
                requirements is binding and supersedes that of 
                the State survey.
                  [(B) Scope.--With respect to each State, the 
                Secretary shall conduct surveys under 
                subparagraph (A) each year with respect to at 
                least 5 percent of the number of skilled 
                nursing facilities surveyed by the State in the 
                year, but in no case less than 5 skilled 
                nursing facilities in the State.
                  [(C) Remedies for substandard performance.--
                If the Secretary finds, on the basis of such 
                surveys, that a State has failed to perform 
                surveys as required under paragraph (2) or that 
                a State's survey and certification performance 
                otherwise is not adequate, the Secretary shall 
                provide for an appropriate remedy, which may 
                include the training of survey teams in the 
                State.
                  [(D) Special surveys of compliance.--Where 
                the Secretary has reason to question the 
                compliance of a skilled nursing facility with 
                any of the requirements of subsections (b), 
                (c), and (d), the Secretary may conduct a 
                survey of the facility and, on the basis of 
                that survey, make independent and binding 
                determinations concerning the extent to which 
                the skilled nursing facility meets such 
                requirements.
          [(4) Investigation of complaints and monitoring 
        compliance.--Each State shall maintain procedures and 
        adequate staff to--
                  [(A) investigate complaints of violations of 
                requirements by skilled nursing facilities, and
                  [(B) monitor, on-site, on a regular, as 
                needed basis, a skilled nursing facility's 
                compliance with the requirements of subsections 
                (b), (c), and (d), if--
                          [(i) the facility has been found not 
                        to be in compliance with such 
                        requirements and is in the process of 
                        correcting deficiencies to achieve such 
                        compliance;
                          [(ii) the facility was previously 
                        found not to be in compliance with such 
                        requirements, has corrected 
                        deficiencies to achieve such 
                        compliance, and verification of 
                        continued compliance is indicated; or
                          [(iii) the State has reason to 
                        question the compliance of the facility 
                        with such requirements.
        A State may maintain and utilize a specialized team 
        (including an attorney, an auditor, and appropriate 
        health care professionals) for the purpose of 
        identifying, surveying, gathering and preserving 
        evidence, and carrying out appropriate enforcement 
        actions against substandard skilled nursing facilities.
          [(5) Disclosure of results of inspections and 
        activities.--
                  [(A) Public information.--Each State, and the 
                Secretary, shall make available to the public--
                          [(i) information respecting all 
                        surveys and certifications made 
                        respecting skilled nursing facilities, 
                        including statements of deficiencies, 
                        within 14 calendar days after such 
                        information is made available to those 
                        facilities, and approved plans of 
                        correction,
                          [(ii) copies of cost reports of such 
                        facilities filed under this title or 
                        title XIX,
                          [(iii) copies of statements of 
                        ownership under section 1124, and
                          [(iv) information disclosed under 
                        section 1126.
                  [(B) Notice to ombudsman.--Each State shall 
                notify the State long-term care ombudsman 
                (established under title III or VII of the 
                Older Americans Act of 1965 in accordance with 
                section 712 of the Act) of the State's findings 
                of noncompliance with any of the requirements 
                of subsections (b), (c), and (d), or of any 
                adverse action taken against a skilled nursing 
                facility under paragraph (1), (2), or (4) of 
                subsection (h), with respect to a skilled 
                nursing facility in the State.
                  [(C) Notice to physicians and skilled nursing 
                facility administrator licensing board.--If a 
                State finds that a skilled nursing facility has 
                provided substandard quality of care, the State 
                shall notify--
                          [(i) the attending physician of each 
                        resident with respect to which such 
                        finding is made, and
                          [(ii) the State board responsible for 
                        the licensing of the skilled nursing 
                        facility administrator at the facility.
                  [(D) Access to fraud control units.--Each 
                State shall provide its State medicaid fraud 
                and abuse control unit (established under 
                section 1903(q)) with access to all information 
                of the State agency responsible for surveys and 
                certifications under this subsection.
  [(h) Enforcement Process.--
          [(1) In general.--If a State finds, on the basis of a 
        standard, extended, or partial extended survey under 
        subsection (g)(2) or otherwise, that a skilled nursing 
        facility no longer meets a requirement of subsection 
        (b), (c), or (d), and further finds that the facility's 
        deficiencies--
                  [(A) immediately jeopardize the health or 
                safety of its residents, the State shall 
                recommend to the Secretary that the Secretary 
                take such action as described in paragraph 
                (2)(A)(i); or
                  [(B) do not immediately jeopardize the health 
                or safety of its residents, the State may 
                recommend to the Secretary that the Secretary 
                take such action as described in paragraph 
                (2)(A)(ii).
        If a State finds that a skilled nursing facility meets 
        the requirements of subsections (b), (c), and (d), but, 
        as of a previous period, did not meet such 
        requirements, the State may recommend a civil money 
        penalty under paragraph (2)(B)(ii) for the days in 
        which it finds that the facility was not in compliance 
        with such requirements.
          [(2) Secretarial authority.--
                  [(A) In general.--With respect to any skilled 
                nursing facility in a State, if the Secretary 
                finds, or pursuant to a recommendation of the 
                State under paragraph (1) finds, that a skilled 
                nursing facility no longer meets a requirement 
                of subsection (b), (c), (d), or (e), and 
                further finds that the facility's 
                deficiencies--
                          [(i) immediately jeopardize the 
                        health or safety of its residents, the 
                        Secretary shall take immediate action 
                        to remove the jeopardy and correct the 
                        deficiencies through the remedy 
                        specified in subparagraph (B)(iii), or 
                        terminate the facility's participation 
                        under this title and may provide, in 
                        addition, for one or more of the other 
                        remedies described in subparagraph (B); 
                        or
                          [(ii) do not immediately jeopardize 
                        the health or safety of its residents, 
                        the Secretary may impose any of the 
                        remedies described in subparagraph (B).
                Nothing in this subparagraph shall be construed 
                as restricting the remedies available to the 
                Secretary to remedy a skilled nursing 
                facility's deficiencies. If the Secretary 
                finds, or pursuant to the recommendation of the 
                State under paragraph (1) finds, that a skilled 
                nursing facility meets such requirements but, 
                as of a previous period, did not meet such 
                requirements, the Secretary may provide for a 
                civil money penalty under subparagraph (B)(ii) 
                for the days on which he finds that the 
                facility was not in compliance with such 
                requirements.
                  [(B) Specified remedies.--The Secretary may 
                take the following actions with respect to a 
                finding that a facility has not met an 
                applicable requirement:
                          [(i) Denial of payment.--The 
                        Secretary may deny any further payments 
                        under this title with respect to all 
                        individuals entitled to benefits under 
                        this title in the facility or with 
                        respect to such individuals admitted to 
                        the facility after the effective date 
                        of the finding.
                          [(ii) Authority with respect to civil 
                        money penalties.--The Secretary may 
                        impose a civil money penalty in an 
                        amount not to exceed $10,000 for each 
                        day of noncompliance. The provisions of 
                        section 1128A (other than subsections 
                        (a) and (b)) shall apply to a civil 
                        money penalty under the previous 
                        sentence in the same manner as such 
                        provisions apply to a penalty or 
                        proceeding under section 1128A(a).
                          [(iii) Appointment of temporary 
                        management.--In consultation with the 
                        State, the Secretary may appoint 
                        temporary management to oversee the 
                        operation of the facility and to assure 
                        the health and safety of the facility's 
                        residents, where there is a need for 
                        temporary management while--
                                  [(I) there is an orderly 
                                closure of the facility, or
                                  [(II) improvements are made 
                                in order to bring the facility 
                                into compliance with all the 
                                requirements of subsections 
                                (b), (c), and (d).
                        The temporary management under this 
                        clause shall not be terminated under 
                        subclause (II) until the Secretary has 
                        determined that the facility has the 
                        management capability to ensure 
                        continued compliance with all the 
                        requirements of subsections (b), (c), 
                        and (d).
                The Secretary shall specify criteria, as to 
                when and how each of such remedies is to be 
                applied, the amounts of any fines, and the 
                severity of each of these remedies, to be used 
                in the imposition of such remedies. Such 
                criteria shall be designed so as to minimize 
                the time between the identification of 
                violations and final imposition of the remedies 
                and shall provide for the imposition of 
                incrementally more severe fines for repeated or 
                uncorrected deficiencies. In addition, the 
                Secretary may provide for other specified 
                remedies, such as directed plans of correction.
                  [(C) Continuation of payments pending 
                remediation.--The Secretary may continue 
                payments, over a period of not longer than 6 
                months after the effective date of the 
                findings, under this title with respect to a 
                skilled nursing facility not in compliance with 
                a requirement of subsection (b), (c), or (d), 
                if--
                          [(i) the State survey agency finds 
                        that it is more appropriate to take 
                        alternative action to assure compliance 
                        of the facility with the requirements 
                        than to terminate the certification of 
                        the facility,
                          [(ii) the State has submitted a plan 
                        and timetable for corrective action to 
                        the Secretary for approval and the 
                        Secretary approves the plan of 
                        corrective action, and
                          [(iii) the facility agrees to repay 
                        to the Federal Government payments 
                        received under this subparagraph if the 
                        corrective action is not taken in 
                        accordance with the approved plan and 
                        timetable.
                The Secretary shall establish guidelines for 
                approval of corrective actions requested by 
                States under this subparagraph.
                  [(D) Assuring prompt compliance.--If a 
                skilled nursing facility has not complied with 
                any of the requirements of subsections (b), 
                (c), and (d), within 3 months after the date 
                the facility is found to be out of compliance 
                with such requirements, the Secretary shall 
                impose the remedy described in subparagraph 
                (B)(i) for all individuals who are admitted to 
                the facility after such date.
                  [(E) Repeated noncompliance.--In the case of 
                a skilled nursing facility which, on 3 
                consecutive standard surveys conducted under 
                subsection (g)(2), has been found to have 
                provided substandard quality of care, the 
                Secretary shall (regardless of what other 
                remedies are provided)--
                          [(i) impose the remedy described in 
                        subparagraph (B)(i), and
                          [(ii) monitor the facility under 
                        subsection (g)(4)(B),
                until the facility has demonstrated, to the 
                satisfaction of the Secretary, that it is in 
                compliance with the requirements of subsections 
                (b), (c), and (d), and that it will remain in 
                compliance with such requirements.
          [(3) Effective period of denial of payment.--A 
        finding to deny payment under this subsection shall 
        terminate when the Secretary finds that the facility is 
        in substantial compliance with all the requirements of 
        subsections (b), (c), and (d).
          [(4) Immediate termination of participation for 
        facility where secretary finds noncompliance and 
        immediate jeopardy.--If the Secretary finds that a 
        skilled nursing facility has not met a requirement of 
        subsection (b), (c), or (d), and finds that the failure 
        immediately jeopardizes the health or safety of its 
        residents, the Secretary shall take immediate action to 
        remove the jeopardy and correct the deficiencies 
        through the remedy specified in paragraph (2)(B)(iii), 
        or the Secretary shall terminate the facility's 
        participation under this title. If the facility's 
        participation under this title is terminated, the State 
        shall provide for the safe and orderly transfer of the 
        residents eligible under this title consistent with the 
        requirements of subsection (c)(2).
          [(5) Construction.--The remedies provided under this 
        subsection are in addition to those otherwise available 
        under State or Federal law and shall not be construed 
        as limiting such other remedies, including any remedy 
        available to an individual at common law. The remedies 
        described in clauses (i), and (iii) of paragraph (2)(B) 
        may be imposed during the pendency of any hearing.
          [(6) Sharing of information.--Notwithstanding any 
        other provision of law, all information concerning 
        skilled nursing facilities required by this section to 
        be filed with the Secretary or a State agency shall be 
        made available by such facilities to Federal or State 
        employees for purposes consistent with the effective 
        administration of programs established under this title 
        and title XIX, including investigations by State 
        medicaid fraud control units.
  [(i) Construction.--Where requirements or obligations under 
this section are identical to those provided under section 1919 
of this Act, the fulfillment of those requirements or 
obligations under section 1919 shall be considered to be the 
fulfillment of the corresponding requirements or obligations 
under this section.]
  (b) Standards for and Certification of Facilities.--
          (1) Standards for facilities.--
                  (A) In general.--The Secretary shall provide 
                for the establishment and maintenance of 
                standards consistent with the contents 
                described in subparagraph (B) for skilled 
                nursing facilities which furnish services for 
                which payment may be made under this title.
                  (B) Contents of standards.--The standards 
                established for facilities under this paragraph 
                shall contain provisions relating to the 
                following items:
                          (i) The treatment of resident medical 
                        records.
                          (ii) Policies, procedures, and bylaws 
                        for operation.
                          (iii) Quality assurance systems.
                          (iv) Resident assessment procedures, 
                        including care planning and outcome 
                        evaluation.
                          (v) The assurance of a safe and 
                        adequate physical plant for the 
                        facility.
                          (vi) Qualifications for staff 
                        sufficient to provide adequate care.
                          (vii) Utilization review.
                          (viii) The protection and enforcement 
                        of resident rights described in 
                        subparagraph (C).
                  (C) Resident rights described.--The resident 
                rights described in this subparagraph are the 
                rights of residents to the following:
                          (i) To exercise the individual's 
                        rights as a resident of the facility 
                        and as a citizen or resident of the 
                        United States.
                          (ii) To receive notice of rights and 
                        services.
                          (iii) To be protected against the 
                        misuse of resident funds.
                          (iv) To be provided privacy and 
                        confidentiality.
                          (v) To voice grievances.
                          (vi) To examine the results of 
                        inspections under the certification 
                        program.
                          (vii) To refuse to perform services 
                        for the facility.
                          (viii) To be provided privacy in 
                        communications and to receive mail.
                          (ix) To have the facility provide 
                        immediate access to any resident by any 
                        representative of the certification 
                        program, the resident's individual 
                        physician, the State long term care 
                        ombudsman, and any person the resident 
                        has designated as a visitor.
                          (x) To retain and use personal 
                        property.
                          (xi) To be free from abuse, including 
                        verbal, sexual, physical and mental 
                        abuse, corporal punishment, and 
                        involuntary seclusion.
                          (xii) To be provided with prior 
                        written notice of a pending transfer or 
                        discharge.
                  (D) Requiring notice and comment.--The 
                standards established for facilities under this 
                paragraph may only take effect after the 
                Secretary has provided the public with notice 
                and an opportunity for comment.
          (2) Certification program.--
                  (A) In general.--The Secretary shall provide 
                for the establishment and operation of a 
                program consistent with the requirements of 
                subparagraph (B) for the certification of 
                skilled nursing facilities which meet the 
                standards established under paragraph (1) and 
                the decertification of facilities which fail to 
                meet such standards.
                  (B) Requirements for program.--In addition to 
                any other requirements the Secretary may 
                impose, in establishing and operating the 
                certification program under subparagraph (A), 
                the Secretary shall ensure the following:
                          (i) The Secretary shall ensure public 
                        access (as defined by the Secretary) to 
                        the certification program's evaluations 
                        of participating facilities, including 
                        compliance records and enforcement 
                        actions and other reports by the 
                        Secretary regarding the ownership, 
                        compliance histories, and services 
                        provided by certified facilities.
                          (ii) Not less often than every 4 
                        years, the Secretary shall audit its 
                        expenditures under the program, through 
                        an entity designated by the Secretary 
                        which is not affiliated with the 
                        program, as designated by the 
                        Secretary.
  (c) Intermediate Sanction Authority.--
          (1) Authority.--In addition to any other authority, 
        where the Secretary determines that a nursing facility 
        which is certified for participation under this title 
        (whether certified by the Secretary as meeting the 
        standards established under subsection (b) or a State-
        certified facility) no longer or does not substantially 
        meet the requirements for such a facility under this 
        title as specified under subsection (b) and further 
        determines that the facility's deficiencies--
                  (A) immediately jeopardize the health and 
                safety of its residents, the Secretary shall at 
                least provide for the termination of the 
                facility's certification for participation 
                under this title, or
                  (B) do not immediately jeopardize the health 
                and safety of its residents, the Secretary may, 
                in lieu of providing for terminating the 
                facility's certification for participation 
                under the plan, provide lesser sanctions 
                including one that provides that no payment 
                will be made under this title with respect to 
                any individual admitted to such facility after 
                a date specified by the Secretary.
          (2) Notice.--The Secretary shall not make such a 
        decision with respect to a facility until the facility 
        has had a reasonable opportunity, following the initial 
        determination that it no longer or does not 
        substantially meets the requirements for such a 
        facility under the plan, to correct its deficiencies, 
        and, following this period, has been given reasonable 
        notice and opportunity for a hearing.
          (3) Effectiveness.--The Secretary's decision to deny 
        payment may be made effective only after such notice to 
        the public and to the facility as may be provided for 
        by the Secretary, and its effectiveness shall terminate 
        (A) when the Secretary finds that the facility is in 
        substantial compliance (or is making good faith efforts 
        to achieve substantial compliance) with the 
        requirements for such a facility under this title, or 
        (B) in the case described in paragraph (1)(B), with the 
        end of the eleventh month following the month such 
        decision is made effective, whichever occurs first. If 
        a facility to which clause (B) of the previous sentence 
        applies still fails to substantially meet the 
        provisions of the respective section on the date 
        specified in such clause, the Secretary shall terminate 
        such facility's certification for participation under 
        this title effective with the first day of the first 
        month following the month specified in such clause.
  (d) State-Certified Facility Defined.--In subsection (a), a 
``State-certified facility'' means a facility licensed or 
certified as a skilled nursing facility by the State in which 
it is located, or a facility which otherwise meets the 
requirements applicable to providers of nursing facility 
services under the State plan under title XIX or the MediGrant 
program under title XXI.

              ESSENTIAL ACCESS COMMUNITY HOSPITAL PROGRAM

  Sec. 1820. (a) * * *
          * * * * * * *
  (i) Eligibility of Hospitals or Facilities for Designation by 
Secretary.--
          (1) Essential access community hospital.--(A) The 
        Secretary shall designate a hospital as an essential 
        access community hospital if the hospital--
                  (i) is located in a State receiving a grant 
                under subsection (a)(1) (except as provided in 
                subsection (k))[;], or in a State which the 
                Secretary finds would receive a grant under 
                such subsection during a fiscal year if funds 
                were appropriated for grants under such 
                subsection for the fiscal year;
          * * * * * * *
          (2) Rural primary care hospital.--(A) The Secretary 
        shall designate a facility as a rural primary care 
        hospital if the facility--
                  (i) is located in a State receiving a grant 
                under subsection (a)(1) (except as provided in 
                subsection (k))[;], or in a State which the 
                Secretary finds would receive a grant under 
                such subsection during a fiscal year if funds 
                were appropriated for grants under such 
                subsection for the fiscal year;
          * * * * * * *

                           SCOPE OF BENEFITS

  Sec. 1832. (a) The benefits provided to an individual by the 
insurance program established by this part shall consist of--
          (1) entitlement to have payment made to him or on his 
        behalf (subject to the provisions of this part) for 
        medical and other health services, except those 
        described in subparagraphs (B) and (D) of paragraph 
        [(2);] (2) and subparagraphs (E) and (F) of section 
        1842(b)(6); and
          (2) entitlement to have payment made on his behalf 
        (subject to the provisions of this part) for--
                  (A) * * *
          * * * * * * *
                  (I) prosthetic devices and orthotics and 
                prosthetics (described in section 1834(h)(4)) 
                furnished by a provider of services or by 
                others under arrangements with them made by a 
                provider of services; [and]
                  (J) partial hospitalization services provided 
                by a community mental health center (as 
                described in section 1861(ff)(2)(B))[.]; and
                  (K) rural emergency access care hospital 
                services (as defined in section 1861(oo)(2)).
          * * * * * * *

                          PAYMENT OF BENEFITS

  Sec. 1833. (a) Except as provided in section 1876, and 
subject to the succeeding provisions of this section, there 
shall be paid from the Federal Supplementary Medical Insurance 
Trust Fund, in the case of each individual who is covered under 
the insurance program established by this part and incurs 
expenses for services with respect to which benefits are 
payable under this part, amounts equal to--
          (1) * * *
          (2) in the case of services described in section 
        1832(a)(2) (except those services described in 
        subparagraphs (D), (E), (F), (G), (H), and (I) of such 
        section and unless otherwise specified in section 
        1881)--
                  [(A) with respect to home health services 
                (other than a covered osteoporosis drug (as 
                defined in section 1861(kk))), and to items and 
                services described in section 1861(s)(10)(A), 
                the lesser of--
                          [(i) the reasonable cost of such 
                        services, as determined under section 
                        1861(v), or
                          [(ii) the customary charges with 
                        respect to such services,
                or, if such services are furnished by a public 
                provider of services, or by another provider 
                which demonstrates to the satisfaction of the 
                Secretary that a significant portion of its 
                patients are low-income (and requests that 
                payment be made under this provision), free of 
                charge or at nominal charges to the public, the 
                amount determined in accordance with section 
                1814(b)(2);]
                  (A) with respect to home health services--
                          (i) that are a type of home health 
                        service described in section 
                        1894(a)(2), and which are furnished to 
                        an individual who (at the time the item 
                        or service is furnished) is under a 
                        plan of care of a home health agency, 
                        the amount determined under section 
                        1894; or
                          (ii) that are not described in clause 
                        (i) (other than a covered osteoporosis 
                        drug) (as defined in section 1861(kk)), 
                        the lesser of--
                                  (I) the reasonable cost of 
                                such services, as determined 
                                under section 1861(v), or
                                  (II) the customary charges 
                                with respect to such services;
          * * * * * * *
                  (E) with respect to--
                          (i) outpatient hospital radiology 
                        services (including diagnostic and 
                        therapeutic radiology, nuclear medicine 
                        and CAT scan procedures, magnetic 
                        resonance imaging, and ultrasound and 
                        other imaging services, but excluding 
                        screening mammography), and
                          (ii) effective for procedures 
                        performed on or after October 1, 1989, 
                        diagnostic procedures (as defined by 
                        the Secretary) described in section 
                        1861(s)(3) (other than diagnostic x-ray 
                        tests and diagnostic laboratory tests),
                the amount determined under subsection (n); 
                [and]
                  (F) with respect to a covered osteoporosis 
                drug (as defined in section 1861(kk)) furnished 
                by a home health agency, 80 percent of the 
                reasonable cost of such service, as determined 
                under section 1861(v); and
                  (G) with respect to items and services 
                described in section 1861(s)(10)(A), the lesser 
                of--
                          (i) the reasonable cost of such 
                        services, as determined under section 
                        1861(v), or
                          (ii) the customary charges with 
                        respect to such services,
                or, if such services are furnished by a public 
                provider of services, or by another provider 
                which demonstrates to the satisfaction of the 
                Secretary that a significant portion of its 
                patients are low-income (and requests that 
                payment be made under this provision), free of 
                charge or at nominal charges to the public, the 
                amount determined in accordance with section 
                1814(b)(2);
          * * * * * * *
          (6) in the case of outpatient rural primary care 
        hospital [services,] services and rural emergency 
        access care hospital services, the amounts described in 
        section 1834(g); and
          * * * * * * *
  (h)(1)(A) The Secretary shall establish fee schedules for 
clinical diagnostic laboratory tests for which payment is made 
under this part, other than such tests performed by a provider 
of services for an inpatient of such provider.
          * * * * * * *
  (2)(A)(i) Except as provided in paragraph (4), the Secretary 
shall set the fee schedules at 60 percent (or, in the case of a 
test performed by a qualified hospital laboratory (as defined 
in paragraph (1)(D)) for outpatients of such hospital, 62 
percent) of the prevailing charge level determined pursuant to 
the third and fourth sentences of section 1842(b)(3) for 
similar clinical diagnostic laboratory tests for the applicable 
region, State, or area for the 12-month period beginning July 
1, 1984, adjusted annually (to become effective on January 1 of 
each year) by a percentage increase or decrease equal to the 
percentage increase or decrease in the Consumer Price Index for 
All Urban Consumers (United States city average), and subject 
to such other adjustments as the Secretary determines are 
justified by technological changes.
  (ii) Notwithstanding clause (i)--
          (I) * * *
          * * * * * * *
          (IV) the annual adjustment in the fee schedules 
        determined under clause (i) for each of the years [1994 
        and 1995] 1994 through 2002 shall be 0 percent.
          * * * * * * *
  (4)(A) In establishing any fee schedule under this 
subsection, the Secretary may provide for an adjustment to take 
into account, with respect to the portion of the expenses of 
clinical diagnostic laboratory tests attributable to wages, the 
relative difference between a region's or local area's wage 
rates and the wage rate presumed in the data on which the 
schedule is based.
  (B) For purposes of subsections (a)(1)(D)(i) and 
(a)(2)(D)(i), the limitation amount for a clinical diagnostic 
laboratory test performed--
          (i) * * *
          * * * * * * *
          (vi) after December 31, 1994, and before January 1, 
        1996, is equal to 80 percent of such median, [and]
          (vii) after December 31, 1995, and before January 1, 
        1997, is equal to 76 percent of such median[.], and
          (viii) after December 31, 1996, is equal to 65 
        percent of such median.
          * * * * * * *
  (i)(1) The Secretary shall, in consultation with appropriate 
medical organizations--
        (A) * * *
          * * * * * * *
  (3)(A) The aggregate amount of the payments to be made under 
this part for outpatient hospital facility services or rural 
primary care hospital services furnished in connection with 
surgical procedures specified under paragraph (1)(A) in a cost 
reporting period shall be equal to the lesser of--
          (i) * * *
          * * * * * * *
  (B)(i) The blend amount for a cost reporting period is the 
sum of--
          (I) the cost proportion (as defined in clause 
        (ii)(I)) of the amount described in subparagraph 
        (A)(i), and
          (II) the ASC proportion (as defined in clause 
        (ii)(II)) [of 80 percent] of the standard overhead 
        amount payable with respect to the same surgical 
        procedure as if it were provided in an ambulatory 
        surgical center in the same area, as determined under 
        paragraph (2)(A)[.], less the amount a provider may 
        charge as described in clause (ii) of section 
        1866(a)(2)(A).
          * * * * * * *
  (n)(1)(A) The aggregate amount of the payments to be made for 
all or part of a cost reporting period for services described 
in subsection (a)(2)(E)(i) furnished under this part on or 
after October 1, 1988, and for services described in subsection 
(a)(2)(E)(ii) furnished under this part on or after October 1, 
1989, shall be equal to the lesser of--
          (i) * * *
  (B)(i) The blend amount for radiology services and diagnostic 
procedures for a cost reporting period is the sum of--
          (I) the cost proportion (as defined in clause (ii)) 
        of the amount described in subparagraph (A)(i); and
          (II) the charge proportion (as defined in clause 
        (ii)(II)) of 62 percent (for services described in 
        subsection (a)(2)(E)(i)), or (for procedures described 
        in subsection (a)(2)(E)(ii)), 42 percent or such other 
        percent established by the Secretary (or carriers 
        acting pursuant to guidelines issued by the Secretary) 
        based on prevailing charges established with actual 
        charge data, [of 80 percent] of the prevailing charge 
        or (for services described in subsection (a)(2)(E)(i) 
        furnished on or after January 1, 1989) the fee schedule 
        amount established for participating physicians for the 
        same services as if they were furnished in a 
        physician's office in the same locality as determined 
        under section 1842(b)[.], less the amount a provider 
        may charge as described in clause (ii) of section 
        1866(a)(2)(A).
          * * * * * * *

        SPECIAL PAYMENT RULES FOR PARTICULAR ITEMS AND SERVICES

  Sec. 1834. (a) Payment for Durable Medical Equipment.--
          (1)  * * *
          * * * * * * *
          (9) Monthly payment amount recognized with respect to 
        oxygen and oxygen equipment.--For purposes of paragraph 
        (5), the amount that is recognized under this paragraph 
        for payment for oxygen and oxygen equipment is the 
        monthly payment amount described in subparagraph (C) of 
        this paragraph. Such amount shall be computed 
        separately (i) for all items of oxygen and oxygen 
        equipment (other than portable oxygen equipment) and 
        (ii) for portable oxygen equipment (each such group 
        referred to in this paragraph as an ``item'').
                  (A)  * * *
          * * * * * * *
                  (C) Monthly payment amount recognized.--For 
                purposes of paragraph (5), the amount that is 
                recognized under this paragraph as the base 
                monthly payment amount for each item 
                furnished--
                          (i)  * * *
          * * * * * * *
                          (iii) in 1992, is the sum of (I) 33 
                        percent of the local average monthly 
                        payment rate computed under 
                        subparagraph (A)(ii)(II) for the item 
                        for 1992, and (II) 67 percent of the 
                        national limited monthly payment rate 
                        computed under subparagraph (B)(ii) for 
                        the item for 1992; [and]
                          (iv) in [a subsequent year] 1993, 
                        1994, and 1995, is the national limited 
                        monthly payment rate computed under 
                        subparagraph (B) for the item for that 
                        year[.];
                          (v) in 1996, is 80 percent of the 
                        national limited monthly payment rate 
                        computed under subparagraph (B) for the 
                        item for the year; and
                          (vi) in a subsequent year, is the 
                        national limited monthly payment rate 
                        computed under subparagraph (B) for the 
                        item for the year.
          * * * * * * *
          (14) Covered item update.--In this subsection, the 
        term ``covered item update'' means, with respect to a 
        year--
                  (A) for 1991 and 1992, the percentage 
                increase in the consumer price index for all 
                urban consumers (U.S. city average) for the 12-
                month period ending with June of the previous 
                year reduced by 1 percentage point; [and]
                  (B) for [a subsequent year] 1993, 1994, and 
                1995, the percentage increase in the consumer 
                price index for all urban consumers (U.S. city 
                average) for the 12-month period ending with 
                June of the previous year[.];
                  (C) for each of the years 1996 through 2002, 
                0 percentage points; and
                  (D) for a subsequent year, the percentage 
                increase in the consumer price index for all 
                urban consumers (U.S. urban average) for the 
                12-month period ending with June of the 
                previous year.
          (15) Advance determinations of coverage for certain 
        items.--
                  (A)  * * *
          * * * * * * *
                  (D) Application by carriers.--A carrier may 
                develop (and periodically update) a list of 
                items under subparagraph (A) and a list of 
                suppliers under subparagraph (B) in the same 
                manner as the Secretary may develop (and 
                periodically update) such lists.
                  (E) Waiver of publication requirement.--A 
                carrier may make an advance determination under 
                subparagraph (C) with respect to an item or 
                supplier on a list developed by the Secretary 
                or the carrier without regard to whether or not 
                the Secretary has promulgated a regulation with 
                respect to the list, except that the carrier 
                may not make such an advance determination with 
                respect to an item or supplier on a list until 
                the expiration of the 30-day period beginning 
                on the date the Secretary or the carrier places 
                the item or supplier on the list.
          * * * * * * *
  (b) Fee Schedules for Radiologist Services.--
          (1)  * * *
          (2) Consultation.--In carrying out paragraph (1), the 
        Secretary shall regularly consult closely with the 
        [Physician Payment Review Commission] Medicare Payment 
        Review Commission, the American College of Radiology, 
        and other organizations representing physicians or 
        suppliers who furnish radiologist services and shall 
        share with them the data and data analysis being used 
        to make the determinations under paragraph (1), 
        including data on variations in current medicare 
        payments by geographic area, and by service and 
        physician specialty.
          * * * * * * *
  (g) Payment for Outpatient Rural Primary Care Hospital 
[Services] Services and Rural Emergency Access Care Hospital 
Services.--
          (1) In general.--The amount of payment for outpatient 
        rural primary care hospital services provided during a 
        year before the prospective payment system described in 
        paragraph (2) is in effect in a rural primary care 
        hospital under this part shall be determined by one of 
        the 2 following methods, as elected by the rural 
        primary care hospital:
                  (A)  * * *
          * * * * * * *
          (2) Development and implementation of all inclusive, 
        prospective payment system.--Not later than January 1, 
        1996, the Secretary shall develop and implement a 
        prospective payment system for determining payments 
        under this part for outpatient rural primary care 
        hospital services using a methodology that includes all 
        costs in providing all such services (including related 
        professional medical services) and that determines the 
        payment amount for such services on a prospective 
        basis. The amount of payment for rural emergency access 
        care hospital services provided during a year shall be 
        determined using the applicable method provided under 
        this subsection for determining payment for outpatient 
        rural primary care hospital services during the year.
  (h) Payment for Prosthetic Devices and Orthotics and 
Prosthetics.--
          (1)  * * *
          * * * * * * *
          (4) Definitions.--In this subsection--
                  (A) the term ``applicable percentage 
                increase'' means--
                          (i)  * * *
          * * * * * * *
                          (iii) for 1994 and 1995, 0 percent, 
                        [and]
                          (iv) for each of the years 1996 
                        through 2002, 1 percent, and
                          [(iv)] (v) for a subsequent year, the 
                        percentage increase in the consumer 
                        price index for all urban consumers 
                        (United States city average) for the 
                        12-month period ending with June of the 
                        previous year;
          * * * * * * *

                           ENROLLMENT PERIODS

  Sec. 1837. (a)  * * *
          * * * * * * *
  (i)(1) In the case of an individual who--
          (A) at the time the individual first satisfies 
        paragraph (1) or (2) of section 1836, is enrolled in a 
        group health plan described in section 1862(b)(1)(A)(v) 
        by reason of the individual's (or the individual's 
        spouse's) current employment status, and
          (B) has elected not to enroll (or to be deemed 
        enrolled) under this section during the individual's 
        initial enrollment period,
there shall be a special enrollment period described in 
paragraph (3). In the case of an individual not described in 
the previous sentence who has not attained the age of 65, at 
the time the individual first satisfies paragraph (1) of 
section 1836, is enrolled in a large group health plan (as that 
term is defined in section [1862(b)(1)(B)(iv)] 
1862(b)(1)(B)(iii)) by reason of the individual's current 
employment status (or the current employment status of a family 
member of the individual), and has elected not to enroll (or to 
be deemed enrolled) under this section during the individual's 
initial enrollment period, there shall be a special enrollment 
period described in paragraph (3)(B).
  (2) In the case of an individual who--
          (A)(i) has enrolled (or has been deemed to have 
        enrolled) in the medical insurance program established 
        under this part during the individual's initial 
        enrollment period, or (ii) is an individual described 
        in paragraph (1)(A);
          (B) has enrolled in such program during any 
        subsequent special enrollment period under this 
        subsection during which the individual was not enrolled 
        in a group health plan described in section 
        1862(b)(1)(A)(v) by reason of the individual's (or 
        individual's spouse's) current employment status; and
          (C) has not terminated enrollment under this section 
        at any time at which the individual is not enrolled in 
        such a group health plan by reason of the individual's 
        (or individual's spouse's) current employment status,
there shall be a special enrollment period described in 
paragraph (3). In the case of an individual not described in 
the previous sentence who has not attained the age of 65, has 
enrolled (or has been deemed to have enrolled) in the medical 
insurance program established under this part during the 
individual's initial enrollment period, or is an individual 
described in the second sentence of paragraph (1), has enrolled 
in such program during any subsequent special enrollment period 
under this subsection during which the individual was not 
enrolled in a large group health plan (as that term is defined 
in section [1862(b)(1)(B)(iv)] 1862(b)(1)(B)(iii)) by reason of 
the individual's current employment status (or the current 
employment status of a family member of the individual), and 
has not terminated enrollment under this section at any time at 
which the individual is not enrolled in such a large group 
health plan by reason of the individual's current employment 
status (or the current employment status of a family member of 
the individual), there shall be a special enrollment period 
described in paragraph (3)(B).
  (3)(A) The special enrollment period referred to in the first 
sentences of paragraphs (1) and (2) is the period including 
each month during any part of which the individual is enrolled 
in a group health plan described in section 1862(b)(1)(A)(v) by 
reason of current employment status ending with the last day of 
the eighth consecutive month in which the individual is at no 
time so enrolled.
  (B) The special enrollment period referred to in the second 
sentences of paragraphs (1) and (2) is the period including 
each month during any part of which the individual is enrolled 
in a large group health plan (as that term is defined in 
section [1862(b)(1)(B)(iv)] 1862(b)(1)(B)(iii)) by reason of 
the individual's current employment status (or the current 
employment status of a family member of the individual) ending 
with the last day of the eighth consecutive month in which the 
individual is at no time so enrolled.
          * * * * * * *

                          AMOUNTS OF PREMIUMS

  Sec. 1839. (a)  * * *
  (b) In the case of an individual whose coverage period began 
pursuant to an enrollment after his initial enrollment period 
(determined pursuant to subsection (c) or (d) of section 1837), 
the monthly premium determined under subsection (a) or (e) 
shall be increased by 10 percent of the monthly premium so 
determined for each full 12 months (in the same continuous 
period of eligibility) in which he could have been but was not 
enrolled. For purposes of the preceding sentence, there shall 
be taken into account (1) the months which elapsed between the 
close of his initial enrollment period and the close of the 
enrollment period in which he enrolled, plus (in the case of an 
individual who reenrolls) (2) the months which elapsed between 
the date of termination of a previous coverage period and the 
close of the enrollment period in which he reenrolled, but 
there shall not be taken into account months for which the 
individual can demonstrate that the individual was enrolled in 
a group health plan described in section 1862(b)(1)(A)(v) by 
reason of the individual's (or the individual's spouse's) 
current employment or months during which the individual has 
not attained the age of 65 and for which the individual can 
demonstrate that the individual was enrolled in a large group 
health plan as an active individual (as those terms are defined 
in section [1862(b)(1)(B)(iv)] 1862(b)(1)(B)(iii)). Any 
increase in an individual's monthly premium under the first 
sentence of this subsection with respect to a particular 
continuous period of eligibility shall not be applicable with 
respect to any other continuous period of eligibility which 
such individual may have.
          * * * * * * *
  (e)(1)(A) Notwithstanding the provisions of subsection (a), 
the monthly premium for each individual enrolled under this 
part for each month after after December 1995 [and prior to 
January 1999] shall be an amount equal to 50 percent (or, if 
higher, the percent described in subparagraph (C)) of the 
monthly actuarial rate for enrollees age 65 and over, as 
determined under subsection (a)(1) and applicable to such 
month.
          * * * * * * *
  (C) For purposes of subparagraph (A), the percent described 
in this subparagraph is the ratio (expressed as a percentage) 
of the monthly premium established under this section for 
months in 1995 to the monthly actuarial rate for enrollees age 
65 and over applicable to such months (as specified in the most 
recent report of the Board of Trustees of the Federal 
Supplementary Medical Insurance Trust Fund published prior to 
the date of the enactment of the Medicare Preservation Act of 
1995).
          * * * * * * *
  (f) For any calendar year after 1988, [if an individual] if 
an individual (other than an individual subject to an increase 
in the monthly premium under this section pursuant to 
subsection (h)) is entitled to monthly benefits under section 
202 or 223 or to a monthly annuity under section 3(a), 4(a), or 
4(f) of the Railroad Retirement Act of 1974 for November and 
December of the preceding year, and if the monthly premium of 
the individual under this section for December and for January 
is deducted from those benefits under section 1840(a)(1) or 
section 1840(b)(1), the monthly premium otherwise determined 
under this section for an individual for that year shall not be 
increased, pursuant to this subsection, to the extent that such 
increase would reduce the amount of benefits payable to that 
individual for that December below the amount of benefits 
payable to that individual for that November (after the 
deduction of the premium under this section). For purposes of 
this subsection, retroactive adjustments or payments and 
deductions on account of work shall not be taken into account 
in determining the monthly benefits to which an individual is 
entitled under section 202 or 223 or under the Railroad 
Retirement Act of 1974.
          * * * * * * *
  (h)(1) Notwithstanding the previous subsections of this 
section, in the case of an individual whose modified adjusted 
gross income for a taxable year ending with or within a 
calendar year (as initially determined by the Secretary in 
accordance with paragraph (3)) exceeds the threshold amount 
described in paragraph (4), the Secretary shall increase the 
amount of the monthly premium for months in the calendar year 
by an amount equal to the difference between--
          (A) 200 percent of the monthly actuarial rate for 
        enrollees age 65 and over as determined under 
        subsection (a)(1) for that calendar year; and
          (B) the total of the monthly premiums paid by the 
        individual under this section (determined without 
        regard to subsection (b)) during such calendar year.
  (2) In the case of an individual described in paragraph (1) 
whose modified adjusted gross exceeds the threshold amount by 
less than $25,000, the amount of the increase in the monthly 
premium applicable under paragraph (1) shall be an amount which 
bears the same ratio to the amount of the increase described in 
paragraph (1) (determined without regard to this paragraph) as 
such excess bears to $25,000. In the case of a joint return 
filed under section 6013 of the Internal Revenue Code of 1986 
by spouses both of whom are enrolled under this part, the 
previous sentence shall be applied by substituting ``$50,000'' 
for ``$25,000''. The preceding provisions of this paragraph 
shall not apply to any individual whose threshold amount is 
zero.
  (3) The Secretary shall make an initial determination of the 
amount of an individual's adjusted gross income for a taxable 
year ending with or within a calendar year for purposes of this 
subsection as follows:
          (A) Not later than October 1 of the year preceding 
        the year, the Secretary shall provide notice to each 
        individual whom the Secretary finds (on the basis of 
        the individual's actual adjusted gross income for the 
        most recent taxable year for which such information is 
        available or other information provided to the 
        Secretary by the Secretary of the Treasury) will be 
        subject to an increase under this subsection that the 
        individual will be subject to such an increase, and 
        shall include in such notice the Secretary's estimate 
        of the individual's adjusted gross income for the year.
          (B) If, during the 30-day period beginning on the 
        date notice is provided to an individual under 
        subparagraph (A), the individual provides the Secretary 
        with information on the individual's anticipated 
        adjusted gross income for the year, the amount 
        initially determined by the Secretary under this 
        paragraph with respect to the individual shall be based 
        on the information provided by the individual.
          (C) If an individual does not provide the Secretary 
        with information under subparagraph (B), the amount 
        initially determined by the Secretary under this 
        paragraph with respect to the individual shall be the 
        amount included in the notice provided to the 
        individual under subparagraph (A).
  (4)(A) If the Secretary determines (on the basis of final 
information provided by the Secretary of the Treasury) that the 
amount of an individual's actual adjusted gross income for a 
taxable year ending with or within a calendar year is less than 
or greater than the amount initially determined by the 
Secretary under paragraph (3), the Secretary shall increase or 
decrease the amount of the individual's monthly premium under 
this section (as the case may be) for months during the 
following calendar year by an amount equal to \1/12\ of the 
difference between--
          (i) the total amount of all monthly premiums paid by 
        the individual under this section during the previous 
        calendar year; and
          (ii) the total amount of all such premiums which 
        would have been paid by the individual during the 
        previous calendar year if the amount of the 
        individual's adjusted gross income initially determined 
        under paragraph (3) were equal to the actual amount of 
        the individual's adjusted gross income determined under 
        this paragraph.
  (B) In the case of an individual who is not enrolled under 
this part for any calendar year for which the individual's 
monthly premium under this section for months during the year 
would be increased pursuant to subparagraph (A) if the 
individual were enrolled under this part for the year, the 
Secretary may take such steps as the Secretary considers 
appropriate to recover from the individual the total amount by 
which the individual's monthly premium for months during the 
year would have been increased under subparagraph (A) if the 
individual were enrolled under this part for the year.
  (C) In the case of a deceased individual for whom the amount 
of the monthly premium under this section for months in a year 
would have been decreased pursuant to subparagraph (A) if the 
individual were not deceased, the Secretary shall make a 
payment to the individual's surviving spouse (or, in the case 
of an individual who does not have a surviving spouse, to the 
individual's estate) in an amount equal to the difference 
between--
          (i) the total amount by which the individual's 
        premium would have been decreased for all months during 
        the year pursuant to subparagraph (A); and
          (ii) the amount (if any) by which the individual's 
        premium was decreased for months during the year 
        pursuant to subparagraph (A).
  (5) In this subsection, the following definitions apply:
          (A) The term ``modified adjusted gross income'' 
        means, with respect to an individual for a taxable 
        year, the individual's adjusted gross income under the 
        Internal Revenue Code of 1986--
                  (i) determined without regard to sections 
                135, 911, 931, and 933 of such Code, and
                  (ii) increased by the amount of interest 
                received or accrued by the individual during 
                the taxable year which is exempt from tax under 
                such Code.
          (B) The term ``threshold amount'' means--
                  (i) except as otherwise provided in this 
                paragraph, $75,000,
                  (ii) $125,000, in the case of a joint return, 
                and
                  (iii) zero in the case of a taxpayer who--
                          (I) is married at the close of the 
                        taxable year but does not file a joint 
                        return for such year, and
                          (II) does not live apart from his 
                        spouse at all times during the taxable 
                        year.
          * * * * * * *


                  medicare growth reduction trust fund


  Sec. 1841A. (a)(1) There is hereby created on the books of 
the Treasury of the United States a trust fund to be known as 
the ``Federal Medicare Growth Reduction Trust Fund'' (in this 
section referred to as the ``Trust Fund''). The Trust Fund 
shall consist of such gifts and bequests as may be made as 
provided in section 201(i)(1) and amounts appropriated under 
paragraph (2).
  (2) There are hereby appropriated to the Trust Fund amounts 
equivalent to 100 percent of the Secretary's estimate of the 
reductions in expenditures under this part that are 
attributable to the Medicare Preservation Act of 1995. The 
amounts appropriated by the preceding sentence shall be 
transferred from time to time (not less frequently than 
monthly) from the general fund in the Treasury to the Trust 
Fund.
  (3)(A) Subject to subparagraph (B), with respect to monies 
transferred to the Trust Fund, no transfers, authorizations of 
appropriations, or appropriations are permitted.
  (B) Beginning with fiscal year 2003, the Secretary may expend 
funds in the Trust Fund to carry out this title, but only to 
the extent provided by Congress in advance through a specific 
amendment to this section.
  (b) The provisions of subsections (b) through (e) of section 
1841 shall apply to the Trust Fund in the same manner as they 
apply to the Federal Supplementary Medical Insurance Trust 
Fund, except that the Board of Trustees and Managing Trustee of 
the Trust Fund shall be composed of the members of the Board of 
Trustees and the Managing Trustee, respectively, of the Federal 
Supplementary Medical Insurance Trust Fund.

             USE OF CARRIERS FOR ADMINISTRATION OF BENEFITS

  Sec. 1842. (a)  * * *
  (b)(1)  * * *
  (2)(A)  * * *
          * * * * * * *
  (C) In the case of residents of nursing facilities who 
receive services described in clause (i) or (ii) of section 
1861(s)(2)(K) performed by a member of a team, the Secretary 
shall instruct carriers to develop mechanisms which permit 
routine payment under this part for up to 1.5 visits per month 
per resident. In the previous sentence, the term ``team'' 
refers to a physician and includes a physician assistant acting 
under the supervision of the physician or a nurse practitioner 
working in collaboration with that physician, or both.
          * * * * * * *
  (6) No payment under this part for a service provided to any 
individual shall (except as provided in section 1870) be made 
to anyone other than such individual or (pursuant to an 
assignment described in subparagraph (B)(ii) of paragraph (3)) 
the physician or other person who provided the service, except 
that (A) payment may be made (i) to the employer of such 
physician or other person if such physician or other person is 
required as a condition of his employment to turn over his fee 
for such service to his employer, or (ii) (where the service 
was provided in a hospital, rural primary care hospital, 
clinic, or other facility) to the facility in which the service 
was provided if there is a contractual arrangement between such 
physician or other person and such facility under which such 
facility submits the bill for such service, (B) payment may be 
made to an entity (i) which provides coverage of the services 
under a health benefits plan, but only to the extent that 
payment is not made under this part, (ii) which has paid the 
person who provided the service an amount (including the amount 
payable under this part) which that person has accepted as 
payment in full for the service, and (iii) to which the 
individual has agreed in writing that payment may be made under 
this part, (C) in the case of services described in clauses 
(i), (ii), or (iv) of section 1861(s)(2)(K) payment shall be 
made to the employer of the physician assistant or nurse 
practitioner involved, [and] (D) payment may be made to a 
physician for physicians' services (and services furnished 
incident to such services) furnished by a second physician to 
patients of the first physician if (i) the first physician is 
unavailable to provide the services; (ii) the services are 
furnished pursuant to an arrangement between the two physicians 
that (I) is informal and reciprocal, or (II) involves per diem 
or other fee-for-time compensation for such services; (iii) the 
services are not provided by the second physician over a 
continuous period of more than 60 days; and (iv) the claim form 
submitted to the carrier for such services includes the second 
physician's unique identifier (provided under the system 
established under subsection (r)) and indicates that the claim 
meets the requirements of this subparagraph for payment to the 
first physician[.], (E) in the case of an item or service 
(other than physicians' services and other than a portable X-
ray or portable electrocardiogram treated as a physician's 
service for purposes of section 1848(j)(3)) furnished to an 
individual who (at the time the item or service is furnished) 
is a resident of a skilled nursing facility, payment shall be 
made to the facility (without regard to whether or not the item 
or service was furnished by the facility, by others under 
arrangement with them made by the facility, or otherwise), and 
(F) in the case of types of home health services described in 
section 1894(a)(2) furnished to an individual who (at the time 
the item or service is furnished) is under a plan of care of a 
home health agency, payment shall be made to the agency 
(without regard to whether or not the item or service was 
furnished by the agency, by others under arrangement with them 
made by the agency, or otherwise). No payment which under the 
preceding sentence may be made directly to the physician or 
other person providing the service involved (pursuant to an 
assignment described in subparagraph (B)(ii) of paragraph (3)) 
shall be made to anyone else under a reassignment or power of 
attorney (except to an employer or facility as described in 
clause (A) of such sentence); but nothing in this subsection 
shall be construed (i) to prevent the making of such a payment 
in accordance with an assignment from the individual to whom 
the service was provided or a reassignment from the physician 
or other person providing such service if such assignment or 
reassignment is made to a governmental agency or entity or is 
established by or pursuant to the order of a court of competent 
jurisdiction, or (ii) to preclude an agent of the physician or 
other person providing the service from receiving any such 
payment if (but only if) such agent does so pursuant to an 
agency agreement under which the compensation to be paid to the 
agent for his services for or in connection with the billing or 
collection of payments due such physician or other person under 
this title is unrelated (directly or indirectly) to the amount 
of such payments or the billings therefor, and is not dependent 
upon the actual collection of any such payment.
          * * * * * * *
  (9)(A)  * * *
          * * * * * * *
  (D) In addition to carrying out its functions under section 
1845, the [Physician Payment Review Commission] Medicare 
Payment Review Commission (in this paragraph referred to as the 
``Commission'') shall comment on any such proposal within the 
period of comment allowed by the Secretary pursuant to 
subparagraph (C).
          * * * * * * *
  (14)(A)  * * *
          * * * * * * *
          (C) For purposes of this paragraph:
                  (i) The physicians' services specified in 
                this clause are the procedures specified (by 
                code and description) in the Overvalued 
                Procedures List for Finance Committee, Revised 
                September 20, 1989, prepared by the [Physician 
                Payment Review Commission] Medicare Payment 
                Review Commission which specification is of 
                physicians' services that have been identified 
                as overvalued by at least 10 percent based on a 
                comparison of payments for such services under 
                a resource-based relative value scale and of 
                the national average prevailing charges under 
                this part.
          * * * * * * *

                  [PHYSICIAN PAYMENT REVIEW COMMISSION

  [Sec. 1845. (a)(1) The Director of the Congressional Office 
of Technology Assessment (hereinafter in this section referred 
to as the ``Director'' and the ``Office'', respectively) shall 
provide for the appointment of a Physician Payment Review 
Commission (hereinafter in this section referred to as the 
``Commission''), to be composed of individuals with national 
recognition for their expertise in health economics, physician 
reimbursement, medical practice, and other related fields 
appointed by the Director (without regard to the provisions of 
title 5, United States Code, governing appointments in the 
competitive service).
  [(2) The Commission shall consist of 13 individuals. Members 
of the Commission shall first be appointed no later than May 1, 
1986, for a term of three years, except that the Director may 
provide initially for such shorter terms as will insure that 
(on a continuing basis) the terms of no more than four members 
expire in any one year.
  [(3) The membership of the Commission shall include (but need 
not be limited to) physicians, other health professionals, 
individuals skilled in the conduct and interpretation of 
biomedical, health services, and health economics research, and 
representatives of consumers and the elderly.
  [(b)(1) The Commission shall make recommendations to the 
Congress, not later than March 31 of each year (beginning with 
1987), regarding adjustments to the reasonable charge levels 
for physicians' services recognized under section 1842(b) and 
changes in the methodology for determining the rates of 
payment, and for making payment, for physicians' services under 
this title and other items and services under this part.
  [(2) In making its recommendations, the Commission shall--
          [(A) assess the likely impact of different 
        adjustments in payment rates, particularly their impact 
        on physician participation in the participation program 
        established under section 1842(h) and on beneficiary 
        access to necessary physicians' services;
          [(B) make recommendations on ways to increase 
        physician participation in that participation program 
        and the acceptance of payment under this part on an 
        assignment-related basis;
          [(C) identify those procedures, involving the use of 
        assistants at surgery, for which payment for those 
        assistants should not be made under this title without 
        prior approval;
          [(D) identify those procedures for which an opinion 
        of a second physician should be required before payment 
        is made under this title;
          [(E) consider policies for moderating the rate of 
        increase in expenditures under this part and the rate 
        of increase in utilization of services under this part;
          [(F) make recommendations regarding major issues in 
        the implementation of the resource-based relative value 
        scale established under section 1848(c);
          [(G) make recommendations regarding further 
        development of the volume performance standards 
        established under section 1848(f), including the 
        development of State-based programs;
          [(H) consider policies to provide payment incentives 
        to increase patient access to primary care and other 
        physician services in large urban and rural areas, 
        including policies regarding payments to physicians 
        pursuant to title XIX;
          [(I) review and consider the number and practice 
        specialties of physicians in training and payments 
        under this title for graduate medical education costs;
          [(J) make recommendations regarding issues relating 
        to utilization review and quality of care, including 
        the effectiveness of peer review procedures and other 
        quality assurance programs applicable to physicians and 
        providers under this title and physician certification 
        and licensing standards and procedures;
          [(K) make recommendations regarding options to help 
        constrain the costs of health insurance to employers, 
        including incentives under this title;
          [(L) comment on the recommendations affecting 
        physician payment under the medicare program that are 
        included in the budget submitted by the President 
        pursuant to section 1105 of title 31, United States 
        Code; and
          [(M) make recommendations regarding medical 
        malpractice liability reform and physician 
        certification and licensing standards and procedures.
  [(c)(1) The following provisions of section 1886(e)(6) shall 
apply to the Commission in the same manner as they apply to the 
Prospective Payment Assessment Commission:
          [(A) Subparagraph (C) (relating to staffing and 
        administration generally).
          [(B) Subparagraph (D) (relating to compensation of 
        members).
          [(C) Subparagraph (F) (relating to access to 
        information).
          [(D) Subparagraph (G) (relating to use of funds).
          [(E) Subparagraph (H) (relating to periodic GAO 
        audits).
          [(F) Subparagraph (J) (relating to requests for 
        appropriations).
  [(2) In order to carry out its functions, the Commission 
shall collect and assess information on medical and surgical 
procedures and services, including information on regional 
variations of medical practice. In collecting and assessing 
information, the Commission shall--
          [(A) utilize existing information, both published and 
        unpublished, where possible, collected and assessed 
        either by its own staff or under other arrangements 
        made in accordance with this section,
          [(B) carry out, or award grants or contracts for, 
        original research and experimentation, where existing 
        information is inadequate for the development of useful 
        and valid guidelines by the Commission, and
          [(C) adopt procedures allowing any interested party 
        to submit information with respect to physicians' 
        services (including new practices, such as the use of 
        new technologies and treatment modalities), which 
        information the Commission shall consider in making 
        reports and recommendations to the Secretary and 
        Congress.
  [(d) There are authorized to be appropriated such sums as may 
be necessary to carry out the provisions of this section. Such 
sums shall be payable from the Federal Supplementary Medical 
Insurance Trust Fund.
  [(e)(1) Not later than December 31st of each year (beginning 
with 1988), the Secretary shall transmit to the Physician 
Payment Review Commission, to the Congressional Budget Office, 
and to the Congressional Research Service of the Library of 
Congress national data (known as the Part B Medicare Annual 
Data System) for the previous year respecting part B of this 
title.
  [(2) The Secretary, in consultation with the Physician 
Payment Review Commission, the Congressional Budget Office, and 
the Congressional Research Service of the Library of Congress, 
shall establish and annually revise standards for the data 
reporting system described in paragraph (1).
  [(3) The Secretary shall also provide to the entities 
described in paragraph (1) additional data respecting the 
program under this part as may be reasonably requested by them 
on an agreed-upon schedule.
  [(4) The Secretary shall develop, in consultation with the 
Physician Payment Review Commission, the Congressional Budget 
Office, and the Congressional Research Service of the Library 
of Congress, a system for providing to each of such entities on 
a quarterly basis summary data on aggregate expenditures under 
this part by type of service and by type of provider. Such data 
shall be provided not later than 90 days after the end of each 
quarter (for quarters beginning with the calendar quarter 
ending on March 31, 1989).]
          * * * * * * *

                    PAYMENT FOR PHYSICIANS' SERVICES

  Sec. 1848. (a)  * * *
          * * * * * * *
  (c) Determination of Relative Values for Physicians' 
Services.--
          (1)  * * *
          (2) Determination of relative values.--
                  (A) In general.--
                          (i)  * * *
                          (ii) Extrapolation.--The Secretary 
                        may use extrapolation and other 
                        techniques to determine the number of 
                        relative value units for physicians' 
                        services for which specific data are 
                        not available and shall take into 
                        account recommendations of the 
                        [Physician Payment Review Commission] 
                        Medicare Payment Review Commission and 
                        the results of consultations with 
                        organizations representing physicians 
                        who provide such services.
          * * * * * * *
          (2) Determination of relative values.--
                  (A)  * * *
                  (B) Periodic review and adjustments in 
                relative values.--
                          (i)  * * *
          * * * * * * *
                          (iii) Consultation.--The Secretary, 
                        in making adjustments under clause 
                        (ii), shall consult with the [Physician 
                        Payment Review Commission] Medicare 
                        Payment Review Commission and 
                        organizations representing physicians.
          * * * * * * *
          (5) Coding.--The Secretary shall establish a uniform 
        procedure coding system for the coding of all 
        physicians' services. The Secretary shall provide for 
        an appropriate coding structure for visits and 
        consultations. The Secretary may incorporate the use of 
        time in the coding for visits and consultations. The 
        Secretary, in establishing such coding system, shall 
        consult with the [Physician Payment Review Commission] 
        Medicare Payment Review Commission and other 
        organizations representing physicians.
          * * * * * * *
  (d) Conversion Factors.--
          (1) Establishment.--
                  (A) In general.--The conversion factor [(or 
                factors)] for each year shall be the conversion 
                factor [(or factors)] established under this 
                subsection for the previous year (or, in the 
                case of 1992, specified in subparagraph (B)) 
                adjusted by the update [or updates] 
                (established under paragraph (3) ) for the year 
                involved.
          * * * * * * *
                  (C) Special rule for 1996.--For 1996, the 
                conversion factor under this subsection shall 
                be $34.60 for all physicians' services.
                  [(C)] (D) Publication.--The Secretary shall 
                cause to have published in the Federal 
                Register, during the last 15 days of October 
                of--
                          (i) 1991, the conversion factor which 
                        will apply to physicians' services for 
                        1992, and the update (or updates) 
                        determined under paragraph (3) for 1992 
                        and
                          (ii) each succeeding year, the 
                        conversion factor [(or factors)] which 
                        will apply to physicians' services for 
                        the following year and the update [(or 
                        updates)] determined under paragraph 
                        (3) for such year.
          [(2) Recommendation of update.--
                  [(A) In general.--Not later than April 15 of 
                each year (beginning with 1991), the Secretary 
                shall transmit to the Congress a report that 
                includes a recommendation on the appropriate 
                update (or updates) in the conversion factor 
                (or factors) for all physicians' services (as 
                defined in subsection (f)(5)(A)) in the 
                following year. The Secretary may recommend a 
                uniform update or different updates for 
                different categories or groups of services. In 
                making the recommendation, the Secretary shall 
                consider--
                          [(i) the percentage change in the 
                        medicare economic index (described in 
                        the fourth sentence of section 
                        1842(b)(3)) for that year;
                          [(ii) the percentage by which actual 
                        expenditures for all physicians' 
                        services and for the services involved 
                        under this part for the fiscal year 
                        ending in the year preceding the year 
                        in which such recommendation is made 
                        were greater or less than actual 
                        expenditures for such services in the 
                        fiscal year ending in the second 
                        preceding year;
                          [(iii) the relationship between the 
                        percentage determined under clause (ii) 
                        for a fiscal year and the performance 
                        standard rate of increase (established 
                        under subsection (f)(2)) for that 
                        fiscal year;
                          [(iv) changes in volume or intensity 
                        of services;
                          [(v) access to services; and
                          [(vi) other factors that may 
                        contribute to changes in volume or 
                        intensity of services or access to 
                        services.
                [For purposes of making the comparison under 
                clause (iii), the Secretary shall adjust the 
                performance standard rate of increase for a 
                fiscal year to reflect changes in the actual 
                proportion of individuals who are enrolled 
                under this part who are HMO enrollees (as 
                defined in subsection (f)(5)(B)) in that fiscal 
                year compared with such proportion for the 
                previous fiscal year.
                  [(B) Additional considerations.--In making 
                recommendations under subparagraph (A), the 
                Secretary may also consider--
                          [(i) unexpected changes by physicians 
                        in response to the implementation of 
                        the fee schedule;
                          [(ii) unexpected changes in outlay 
                        projections;
                          [(iii) changes in the quality or 
                        appropriateness of care; and
                          [(iv) any other relevant factors not 
                        measured in the resource-based payment 
                        methodology.
                  [(C) Special rule for 1992 update.--In 
                considering the update for 1992, the Secretary 
                shall make a separate determination of the 
                percentage and relationship described in 
                clauses (ii) and (iii) of subparagraph (A) with 
                respect to the category of surgical services 
                (as defined by the Secretary pursuant to 
                subsection (j)(1)).
                  [(D) Explanation of update.--The Secretary 
                shall include in each report under subparagraph 
                (A)--
                          [(i) the update recommended for each 
                        category of physicians' services 
                        (established by the Secretary under 
                        subsection (j)(1)) and for each of the 
                        following groups of physicians' 
                        services: nonsurgical services, visits, 
                        consultations, and emergency room 
                        services;
                          [(ii) the rationale for the 
                        recommended update (or updates) for 
                        each category and group of services 
                        described in clause (i); and
                          [(iii) the data and analyses 
                        underlying the update (or updates) 
                        recommended.
                  [(E) Computation of budget-neutral 
                adjustment.--
                          [(i) In general.--The Secretary shall 
                        include in the report made under 
                        subparagraph (A) in a year a statement 
                        of the percentage by which (I) the 
                        actual expenditures for physicians' 
                        services under this part (during the 
                        fiscal year ending in the preceding 
                        year, as set forth in the most recent 
                        annual report made pursuant to section 
                        1841(b)(2)), exceeded, or was less than 
                        (II) the expenditures projected for the 
                        fiscal year under clause (ii).
                          [(ii) Projected expenditures.--For 
                        purposes of clause (i), the 
                        expenditures projected under this 
                        clause for a fiscal year is the actual 
                        expenditures for physicians' services 
                        made under this part in the second 
                        preceding fiscal year--
                                  [(I) increased by the 
                                weighted average percentage 
                                increase permitted under this 
                                part for payments for 
                                physicians' services in the 
                                preceding fiscal year;
                                  [(II) adjusted to reflect the 
                                percentage change in the 
                                average number of individuals 
                                enrolled under this part (who 
                                are not enrolled with a risk-
                                sharing contract under section 
                                1876) for the preceding fiscal 
                                year compared with the second 
                                preceding fiscal year;
                                  [(III) adjusted to reflect 
                                the average annual percentage 
                                growth in the volume and 
                                intensity of physicians' 
                                services under this part for 
                                the five-fiscal-year period 
                                ending with the second 
                                preceding fiscal year; and
                                  [(IV) adjusted to reflect the 
                                percentage change in 
                                expenditures for physicians' 
                                services under this part in the 
                                preceding fiscal year (compared 
                                with the second preceding 
                                fiscal year) which result from 
                                changes in law or regulations.
                  [(F) Commission review.--The Physician 
                Payment Review Commission shall review the 
                report submitted under subparagraph (A) in a 
                year and shall submit to the Congress, by not 
                later than May 15 of the year, a report 
                including its recommendations respecting the 
                update (or updates) in the conversion factor 
                (or factors) for the following year.
          [(3) Update.--
                  [(A) Based on index.--
                          [(i) In general.--Unless Congress 
                        otherwise provides, subject to 
                        subparagraph (B), except as provided in 
                        clauses (iii) through (v), for purposes 
                        of this section the update for a year 
                        is equal to the Secretary's estimate of 
                        the percentage increase in the 
                        appropriate update index (as defined in 
                        clause (ii)) for the year.
                          [(ii) Appropriate update index 
                        defined.--In clause (i), the term 
                        ``appropriate update index'' means--
                                  [(I) for services for which 
                                prevailing charges in 1989 were 
                                subject to a limit under the 
                                fourth sentence of section 
                                1842(b)(3), the medicare 
                                economic index (referred to in 
                                that sentence), and
                                  [(II) for other services, 
                                such index (such as the 
                                consumer price index) that was 
                                applicable under this part in 
                                1989 to increases in the 
                                payment amounts recognized 
                                under this part with respect to 
                                such services.
                          [(iii) Adjustment in percentage 
                        increase.--In applying clause (i) for 
                        services furnished in 1992 for which 
                        the appropriate update index is the 
                        index described in clause (ii)(I), the 
                        percentage increase in the appropriate 
                        update index shall be reduced by 0.4 
                        percentage points.
                          [(iv) Adjustment in percentage 
                        increase for 1994.--In applying clause 
                        (i) for services furnished in 1994, the 
                        percentage increase in the appropriate 
                        update index shall be reduced by--
                                  [(I) 3.6 percentage points 
                                for services included in the 
                                category of surgical services 
                                (as defined for purposes of 
                                subsection (j)(1)), and
                                  [(II) 2.6 percentage points 
                                for other services.
                          [(v) Adjustment in percentage 
                        increase for 1995.--In applying clause 
                        (i) for services furnished in 1995, the 
                        percentage increase in the appropriate 
                        update index shall be reduced by 2.7 
                        percentage points.
                          [(vi) Exception for category of 
                        primary care services.--Clauses (iv) 
                        and (v) shall not apply to services 
                        included in the category of primary 
                        care services (as defined for purposes 
                        of subsection (j)(1)).
                  [(B) Adjustment in update.--
                          [(i) In general.-- The update for a 
                        category of physicians' services for a 
                        year provided under subparagraph (A) 
                        shall, subject to clause (ii), be 
                        increased or decreased by the same 
                        percentage by which (I) the percentage 
                        increase in the actual expenditures for 
                        services in such category in the second 
                        previous fiscal year over the third 
                        previous fiscal year, was less or 
                        greater, respectively, than (II) the 
                        performance standard rate of increase 
                        (established under subsection (f)) for 
                        such category of services for the 
                        second previous fiscal year.
                          [(ii) Restrictions on adjustment.--
                        The adjustment made under clause (i) 
                        for a year may not result in a decrease 
                        of more than--
                                  [(I) 2 percentage points for 
                                the update for 1992 or 1993,
                                  [(II) 2\1/2\ percentage 
                                points for the update for 1994, 
                                and
                                  [(III) 5 percentage points 
                                for the update for any 
                                succeeding year.]
          (3) Update.--
                  (A) In general.--Subject to subparagraph (E), 
                for purposes of this section the update for a 
                year (beginning with 1997) is equal to the 
                product of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage increase in the 
                        medicare economic index (described in 
                        the fourth sentence of section 
                        1842(b)(3)) for the year (divided by 
                        100), and
                          (ii) 1 plus the Secretary's estimate 
                        of the update adjustment factor for the 
                        year (divided by 100),
                minus 1 and multiplied by 100.
                  (B) Update adjustment factor.--The ``update 
                adjustment factor'' for a year is equal to the 
                quotient of--
                          (i) the difference between (I) the 
                        sum of the allowed expenditures for 
                        physicians' services furnished during 
                        each of the years 1995 through the year 
                        involved and (II) the sum of the amount 
                        of actual expenditures for physicians' 
                        services furnished during each of the 
                        years 1995 through the previous year; 
                        divided by
                          (ii) the Secretary's estimate of 
                        allowed expenditures for physicians' 
                        services furnished during the year.
                  (C) Determination of allowed expenditures.--
                For purposes of subparagraph (B), allowed 
                expenditures for physicians' services shall be 
                determined as follows (as estimated by the 
                Secretary):
                          (i) In the case of allowed 
                        expenditures for 1995, such 
                        expenditures shall be equal to actual 
                        expenditures for services furnished 
                        during the 12-month period ending with 
                        June of 1995.
                          (ii) In the case of allowed 
                        expenditures for 1996 and each 
                        subsequent year, such expenditures 
                        shall be equal to allowed expenditures 
                        for the previous year, increased by the 
                        sustainable growth rate under 
                        subsection (f) for the fiscal year 
                        which begins during the year.
                  (D) Determination of actual expenditures.--
                For purposes of subparagraph (B), the amount of 
                actual expenditures for physicians' services 
                furnished during a year shall be equal to the 
                amount of expenditures for such services during 
                the 12-month period ending with June of the 
                previous year.
                  (E) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of 
                the update adjustment factor determined under 
                subparagraph (B) for a year, the update in the 
                conversion factor under this paragraph for the 
                year may not be--
                          (i) greater than 103 percent of 1 
                        plus the Secretary's estimate of the 
                        percentage increase in the medicare 
                        economic index (described in the fourth 
                        sentence of section 1842(b)(3)) for the 
                        year (divided by 100); or
                          (ii) except as required to carry out 
                        section 1895, less than 93 percent of 1 
                        plus the Secretary's estimate of the 
                        percentage increase in the medicare 
                        economic index (described in the fourth 
                        sentence of section 1842(b)(3)) for the 
                        year (divided by 100).
          (4) Reporting requirements.--
                  (A) In general.--Not later than November 1 of 
                each year (beginning with 1996), the Secretary 
                shall transmit to the Congress a report that 
                describes the update in the conversion factor 
                for physicians' services (as defined in 
                subsection (f)(3)(A)) in the following year.
                  (B) Commission review.--The Medicare Payment 
                Review Commission shall review the report 
                submitted under subparagraph (A) for a year and 
                shall submit to the Congress, by not later than 
                December 1 of the year, a report containing its 
                analysis of the conversion factor for the 
                following year.
          * * * * * * *
  [(f) Medicare Volume Performance Standard Rates of 
Increase.--
          [(1) Process for establishing medicare volume 
        performance standard rates of increase.--
                  [(A) Secretary's recommendation.--By not 
                later than April 15 of each year (beginning 
                with 1990), the Secretary shall transmit to the 
                Congress a recommendation on performance 
                standard rates of increase for all physicians' 
                services and for each category of such services 
                for the fiscal year beginning in such year. In 
                making the recommendation, the Secretary shall 
                confer with organizations representing 
                physicians and shall consider--
                          [(i) inflation,
                          [(ii) changes in numbers of enrollees 
                        (other than HMO enrollees) under this 
                        part,
                          [(iii) changes in the age composition 
                        of enrollees (other than HMO enrollees) 
                        under this part,
                          [(iv) changes in technology,
                          [(v) evidence of inappropriate 
                        utilization of services,
                          [(vi) evidence of lack of access to 
                        necessary physicians' services, and
                          [(vii) such other factors as the 
                        Secretary considers appropriate.
                  [(B) Commission review.--The Physician 
                Payment Review Commission shall review the 
                recommendation transmitted during a year under 
                subparagraph (A) and shall make its 
                recommendation to Congress, by not later than 
                May 15 of the year, respecting the performance 
                standard rates of increase for the fiscal year 
                beginning in that year.
                  [(C) Publication of performance standard 
                rates of increase.--The Secretary shall cause 
                to have published in the Federal Register, in 
                the last 15 days of October of each year 
                (beginning with 1991), the performance standard 
                rates of increase for all physicians' services 
                and for each category of physicians' services 
                for the fiscal year beginning in that year. The 
                Secretary shall cause to have published in the 
                Federal Register, by not later than January 1, 
                1990, the performance standard rate of increase 
                under subparagraph (D) for fiscal year 1990.
                  [(D) Performance standard rate of increase 
                for fiscal year 1990.--The performance standard 
                rate of increase for fiscal year 1990 is equal 
                to the sum of--
                          [(i) the Secretary's estimate of the 
                        weighted average percentage increase in 
                        the reasonable charges for physicians' 
                        services (as defined in subsection 
                        (f)(5)(A)) under this part for portions 
                        of calendar years included in fiscal 
                        year 1990,
                          [(ii) the Secretary's estimate of the 
                        percentage increase or decrease in the 
                        average number of individuals enrolled 
                        under this part (other than HMO 
                        enrollees) from fiscal year 1989 to 
                        fiscal year 1990,
                          [(iii) the Secretary's estimate of 
                        the average annual percentage growth in 
                        volume and intensity of physicians' 
                        services under this part for the 5-
                        fiscal-year period ending with fiscal 
                        year 1989 (based upon information 
                        contained in the most recent annual 
                        report made pursuant to section 
                        1841(b)(2)), and
                          [(iv) the Secretary's estimate of the 
                        percentage increase or decrease in 
                        expenditures for physicians' services 
                        (as defined in subsection (f)(5)(A)) in 
                        fiscal year 1990 (compared with fiscal 
                        year 1989) which will result from 
                        changes in law or regulations and which 
                        is not taken into account in the 
                        percentage increase described in clause 
                        (i),
                [reduced by \1/2\ percent.
          [(2) Specification of performance standard rates of 
        increase for subsequent fiscal years.--
                  [(A) In general.--Unless Congress otherwise 
                provides, subject to paragraph (4), the 
                performance standard rate of increase, for all 
                physicians' services and for each category of 
                physicians' services, for a fiscal year 
                (beginning with fiscal year 1991) shall be 
                equal to the product of--
                          [(i) 1 plus the Secretary's estimate 
                        of the weighted average percentage 
                        increase (divided by 100) in the fees 
                        for all physicians' services or for the 
                        category of physicians' services, 
                        respectively, under this part for 
                        portions of calendar years included in 
                        the fiscal year involved,
                          [(ii) 1 plus the Secretary's estimate 
                        of the percentage increase or decrease 
                        (divided by 100) in the average number 
                        of individuals enrolled under this part 
                        (other than HMO enrollees) from the 
                        previous fiscal year to the fiscal year 
                        involved,
                          [(iii) 1 plus the Secretary's 
                        estimate of the average annual 
                        percentage growth (divided by 100) in 
                        volume and intensity of all physicians' 
                        services or of the category of 
                        physicians' services, respectively, 
                        under this part for the 5-fiscal-year 
                        period ending with the preceding fiscal 
                        year (based upon information contained 
                        in the most recent annual report made 
                        pursuant to section 1841(b)(2)), and
                          [(iv) 1 plus the Secretary's estimate 
                        of the percentage increase or decrease 
                        (divided by 100) in expenditures for 
                        all physicians' services or of the 
                        category of physicians' services, 
                        respectively, in the fiscal year 
                        (compared with the preceding fiscal 
                        year) which will result from changes in 
                        law or regulations including changes in 
                        law and regulations affecting the 
                        percentage increase described in clause 
                        (i) and which is not taken into account 
                        in the percentage increase described in 
                        clause (i),
                minus 1, multiplied by 100, and reduced by the 
                performance standard factor (specified in 
                subparagraph (B)). In clause (i), the term 
                ``fees'' means, with respect to 1991, 
                reasonable charges and, with respect to any 
                succeeding year, fee schedule amounts.
                  [(B) Performance standard factor.--For 
                purposes of subparagraph (A), the performance 
                standard factor--
                          [(i) for 1991 is 1 percentage point,
                          [(ii) for 1992 is 1\1/2\ percentage 
                        points,
                          [(iii) for 1993 is 2 percentage 
                        points,
                          [(iv) for 1994 is 3\1/2\ percentage 
                        points, and
                          [(v) for each succeeding year is 4 
                        percentage points.
                  [(C) Performance standard rates of increase 
                for fiscal year 1991.--Notwithstanding 
                subparagraph (A), the performance standard rate 
                of increase for a category of physicians' 
                services for fiscal year 1991 shall be the sum 
                of--
                          [(i) the Secretary's estimate of the 
                        percentage by which actual expenditures 
                        for the category of physicians' 
                        services under this part for fiscal 
                        year 1991 exceed actual expenditures 
                        for such category of services in fiscal 
                        year 1990 (determined without regard to 
                        the amendments made by the Omnibus 
                        Budget Reconciliation Act of 1990), and
                          [(ii) the Secretary's estimate of the 
                        percentage increase or decrease in 
                        expenditures for the category of 
                        services in fiscal year 1991 (compared 
                        with fiscal year 1990) that will result 
                        from changes in law and regulations 
                        (including the Omnibus Budget 
                        Reconciliation Act of 1990), reduced by 
                        2 percentage points.
          [(3) Quarterly reporting.--The Secretary shall 
        establish procedures for providing, on a quarterly 
        basis to the Physician Payment Review Commission, the 
        Congressional Budget Office, the Congressional Research 
        Service, the Committees on Ways and Means and Energy 
        and Commerce of the House of Representatives, and the 
        Committee on Finance of the Senate, information on 
        compliance with performance standard rates of increase 
        established under this subsection.
          [(4) Separate group-specific performance standard 
        rates of increase.--
                  [(A) Implementation of plan.--Subject to 
                subparagraph (B), the Secretary shall, after 
                completion of the study required under section 
                6102(e)(3) of the Omnibus Budget Reconciliation 
                Act of 1989, but not before October 1, 1991, 
                implement a plan under which qualified 
                physician groups could elect annually separate 
                performance standard rates of increase other 
                than the performance standard rate of increase 
                established for the year under paragraph (2) 
                for such physicians. The Secretary shall 
                develop criteria to determine which physician 
                groups are eligible to elect to have applied to 
                such groups separate performance standard rates 
                of increase and the methods by which such 
                group-specific performance standard rates of 
                increase would be accomplished. The Secretary 
                shall report to the Congress on the criteria 
                and methods by April 15, 1991. The Physician 
                Payment Review Commission shall review and 
                comment on such recommendations by May 15, 
                1991. Before implementing group-specific 
                performance standard rates of increase, the 
                Secretary shall provide for notice and comment 
                in the Federal Register and consult with 
                organizations representing physicians.
                  [(B) Approval.--The Secretary may not 
                implement the plan described in subparagraph 
                (A), unless specifically approved by law.
          [(5) Definitions.--In this subsection:
                  [(A) Services included in physicians' 
                services.--The term ``physicians' services'' 
                includes other items and services (such as 
                clinical diagnostic laboratory tests and 
                radiology services), specified by the 
                Secretary, that are commonly performed or 
                furnished by a physician or in a physician's 
                office, but does not include services furnished 
                to an HMO enrollee under a risk-sharing 
                contract under section 1876.
                  [(B) HMO enrollee.--The term ``HMO enrollee'' 
                means, with respect to a fiscal year, an 
                individual enrolled under this part who is 
                enrolled with an entity under a risk-sharing 
                contract under section 1876 in the fiscal 
                year.]
  (f) Sustainable Growth Rate.--
          (1) Specification of growth rate.--
                  (A) Fiscal year 1996.--The sustainable growth 
                rate for all physicians' services for fiscal 
                year 1996 shall be equal to the product of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage change in the 
                        medicare economic index for 1996 
                        (described in the fourth sentence of 
                        section 1842(b)(3)) (divided by 100),
                          (ii) 1 plus the Secretary's estimate 
                        of the percentage change (divided by 
                        100) in the average number of 
                        individuals enrolled under this part 
                        (other than private plan enrollees) 
                        from fiscal year 1995 to fiscal year 
                        1996,
                          (iii) 1 plus the Secretary's estimate 
                        of the projected percentage growth in 
                        real gross domestic product per capita 
                        (divided by 100) from fiscal year 1995 
                        to fiscal year 1996, plus 2 percentage 
                        points, and
                          (iv) 1 plus the Secretary's estimate 
                        of the percentage change (divided by 
                        100) in expenditures for all 
                        physicians' services in fiscal year 
                        1996 (compared with fiscal year 1995) 
                        which will result from changes in law, 
                        determined without taking into account 
                        estimated changes in expenditures due 
                        to changes in the volume and intensity 
                        of physicians' services or changes in 
                        expenditures resulting from changes in 
                        the update to the conversion factor 
                        under subsection (d),
                minus 1 and multiplied by 100.
                  (B) Subsequent fiscal years.--The sustainable 
                growth rate for all physicians' services for 
                fiscal year 1997 and each subsequent fiscal 
                year shall be equal to the product of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage change in the 
                        medicare economic index for the fiscal 
                        year involved (described in the fourth 
                        sentence of section 1842(b)(3)) 
                        (divided by 100),
                          (ii) 1 plus the Secretary's estimate 
                        of the percentage change (divided by 
                        100) in the average number of 
                        individuals enrolled under this part 
                        (other than private plan enrollees) 
                        from the previous fiscal year to the 
                        fiscal year involved,
                          (iii) 1 plus the Secretary's estimate 
                        of the projected percentage growth in 
                        real gross domestic product per capita 
                        (divided by 100) from the previous 
                        fiscal year to the fiscal year 
                        involved, plus 2 percentage points, and
                          (iv) 1 plus the Secretary's estimate 
                        of the percentage change (divided by 
                        100) in expenditures for all 
                        physicians' services in the fiscal year 
                        (compared with the previous fiscal 
                        year) which will result from changes in 
                        law (including changes made by the 
                        Secretary in response to section 1895), 
                        determined without taking into account 
                        estimated changes in expenditures due 
                        to changes in the volume and intensity 
                        of physicians' services or changes in 
                        expenditures resulting from changes in 
                        the update to the conversion factor 
                        under subsection (d)(3),
                minus 1 and multiplied by 100.
          (2) Exclusion of services furnished to private plan 
        enrollees.--In this subsection, the term ``physicians' 
        services'' with respect to a fiscal year does not 
        include services furnished to an individual enrolled 
        under this part who has elected to receive benefits 
        under this title for the fiscal year through a 
        MedicarePlus product offered under part C or through 
        enrollment with an eligible organization with a risk-
        sharing contract under section 1876.
  (g) Limitation on Beneficiary Liability.--
          (1)  * * *
          * * * * * * *
          (6) Monitoring of charges.--
                  (A)  * * *
          * * * * * * *
                  (C) Plan.--If the Secretary finds that there 
                has been a significant decrease in the 
                proportions described in subclauses (I) and 
                (II) of subparagraph (A)(ii) or an increase in 
                the amounts described in subclause (III) of 
                that subparagraph, the Secretary shall develop 
                a plan to address such a problem and transmit 
                to Congress recommendations regarding the plan. 
                The [Physician Payment Review Commission] 
                Medicare Payment Review Commission shall review 
                the Secretary's plan and recommendations and 
                transmit to Congress its comments regarding 
                such plan and recommendations.
          (7) Monitoring of utilization and access.--
                  (A)  * * *
          * * * * * * *
                  (C) Recommendations.--The Secretary shall 
                include in each annual report under 
                subparagraph (B) recommendations--
                          (i) addressing any identified 
                        patterns of inappropriate utilization,
                          (ii) on utilization review,
                          (iii) on physician education or 
                        patient education,
                          (iv) addressing any problems of 
                        beneficiary access to care made evident 
                        by the monitoring process, and
                          (v) on such other matters as the 
                        Secretary deems appropriate.
                The [Physician Payment Review Commission] 
                Medicare Payment Review Commission shall 
                comment on the Secretary's recommendations and 
                in developing its comments, the Commission 
                shall convene and consult a panel of physician 
                experts to evaluate the implications of medical 
                utilization patterns for the quality of and 
                access to patient care.
          * * * * * * *
  (i) Miscellaneous Provisions.--
          (1) Restriction on administrative and judicial 
        review.--There shall be no administrative or judicial 
        review under section 1869 or otherwise of--
                  (A)  * * *
          * * * * * * *
                  (C) the determination of [conversion factors] 
                the conversion factor under subsection (d),
          * * * * * * *

              Part C--Provisions Relating to MedicarePlus


 requirements for medicareplus organizations; high deductible/medisave 
                                products


  Sec. 1851. (a) MedicarePlus Organization Defined.--In this 
part, subject to the succeeding provisions of this section, the 
term ``MedicarePlus organization'' means a public or private 
entity that is certified under section 1857 as meeting the 
requirements and standards of this part for such an 
organization.
  (b) Organized and Licensed Under State Law.--
          (1) In general.--A MedicarePlus organization shall be 
        organized and licensed under State law to offer health 
        insurance or health benefits coverage in each State in 
        which it offers a MedicarePlus product.
          (2) Exception for taft-hartley sponsors.--Paragraph 
        (1) shall not apply to a MedicarePlus organization that 
        is a Taft-Hartley sponsor (as defined in section 
        1852(c)(4)).
          (3) Exception for provider-sponsored organizations.--
        Paragraph (1) shall not apply to a MedicarePlus 
        organization that is a provider-sponsored organization 
        (as defined in section 1854(a)) except to the extent 
        provided under section 1857(c).
          (4) Exception for qualified associations.--Paragraph 
        (1) shall not apply to a MedicarePlus organization that 
        is a qualified association (as defined in section 
        1852(c)(4)(B)).
  (c) Prepaid Payment.--A MedicarePlus organization shall be 
compensated (except for deductibles, coinsurance, and 
copayments) for the provision of health care services to 
enrolled members by a payment which is paid on a periodic basis 
without regard to the date the health care services are 
provided and which is fixed without regard to the frequency, 
extent, or kind of health care service actually provided to a 
member.
  (d) Assumption of Full Financial Risk.--The MedicarePlus 
organization shall assume full financial risk on a prospective 
basis for the provision of the health care services (other than 
hospice care) for which benefits are required to be provided 
under section 1852(a)(1), except that the organization--
          (1) may obtain insurance or make other arrangements 
        for the cost of providing to any enrolled member such 
        services the aggregate value of which exceeds $5,000 in 
        any year,
          (2) may obtain insurance or make other arrangements 
        for the cost of such services provided to its enrolled 
        members other than through the organization because 
        medical necessity required their provision before they 
        could be secured through the organization,
          (3) may obtain insurance or make other arrangements 
        for not more than 90 percent of the amount by which its 
        costs for any of its fiscal years exceed 115 percent of 
        its income for such fiscal year, and
          (4) may make arrangements with physicians or other 
        health professionals, health care institutions, or any 
        combination of such individuals or institutions to 
        assume all or part of the financial risk on a 
        prospective basis for the provision of basic health 
        services by the physicians or other health 
        professionals or through the institutions.
In the case of a MedicarePlus organization that is a Taft-
Hartley sponsor (as defined in section 1852(c)(4)(A)) or a 
qualified association (as defined in section 1852(c)(4)(B)), 
this subsection shall not apply with respect to MedicarePlus 
products offered by such organization and issued by an 
organization to which subsection (b)(1) applies or by a 
provider-sponsored organization (as defined in section 
1854(a)).
  (e) Provision Against Risk of Insolvency.--
          (1) In general.--Each MedicarePlus organization shall 
        meet standards under section 1856 relating to the 
        financial solvency and capital adequacy of the 
        organization. Such standards shall take into account 
        the nature and type of MedicarePlus products offered by 
        the organization.
          (2) Treatment of taft-hartley sponsors.--An entity 
        that is a Taft-Hartley sponsor is deemed to meet the 
        requirement of paragraph (1).
          (3) Treatment of certain qualified associations.--An 
        entity that is a qualified association is deemed to 
        meet the requirement of paragraph (1) with respect to 
        MedicarePlus products offered by such association and 
        issued by an organization to which subsection (b)(1) 
        applies or by a provider-sponsored organization.
  (f) High Deductible/Medisave Product Defined.--
          (1) In general.--In this part, the term ``high 
        deductible/medisave product'' means a MedicarePlus 
        product that--
                  (A) provides reimbursement for at least the 
                items and services described in section 
                1852(a)(1) in a year but only after the 
                enrollee incurs countable expenses (as 
                specified under the product) equal to the 
                amount of a deductible (described in paragraph 
                (2));
                  (B) counts as such expenses (for purposes of 
                such deductible) at least all amounts that 
                would have been payable under parts A and B or 
                by the enrollee if the enrollee had elected to 
                receive benefits through the provisions of such 
                parts; and
                  (C) provides, after such deductible is met 
                for a year and for all subsequent expenses for 
                benefits referred to in subparagraph (A) in the 
                year, for a level of reimbursement that is not 
                less than--
                          (i) 100 percent of such expenses, or
                          (ii) 100 percent of the amounts that 
                        would have been paid (without regard to 
                        any deductibles or coinsurance) under 
                        parts A and B with respect to such 
                        expenses,
                whichever is less. Such term does not include 
                the MedicarePlus MSA itself or any contribution 
                into such account.
          (2) Deductible.--The amount of deductible under a 
        high deductible/medisave product--
                  (A) for contract year 1997 shall be not more 
                than $10,000; and
                  (B) for a subsequent contract year shall be 
                not more than the maximum amount of such 
                deductible for the previous contract year under 
                this paragraph increased by the national 
                average per capita growth rate under section 
                1855(c)(3) for the year.
        If the amount of the deductible under subparagraph (B) 
        is not a multiple of $50, the amount shall be rounded 
        to the nearest multiple of $50.
  (g) Organizations Treated as MedicarePlus Organizations 
During Transition.--Any of the following organizations shall be 
considered to qualify as a MedicarePlus organization for 
contract years beginning before January 1, 1998:
          (1) Health maintenance organizations.--An 
        organization that is organized under the laws of any 
        State and that is a qualified health maintenance 
        organization (as defined in section 1310(d) of the 
        Public Health Service Act), an organization recognized 
        under State law as a health maintenance organization, 
        or a similar organization regulated under State law for 
        solvency in the same manner and to the same extent as 
        such a health maintenance organization.
          (2) Licensed insurers.--An organization that is 
        organized under the laws of any State and--
                  (A) is licensed by a State agency as an 
                insurer for the offering of health benefit 
                coverage, or
                  (B) is licensed by a State agency as a 
                service benefit plan,
        but only for individuals residing in an area in which 
        the organization is licensed to offer health insurance 
        coverage.
          (3) Current risk-contractors.--An organization that 
        is an eligible organization (as defined in section 
        1876(b)) and that has a risk-sharing contract in effect 
        under section 1876 as of the date of the enactment of 
        this section.


 requirements relating to benefits, provision of services, enrollment, 
                              and premiums


  Sec. 1852. (a) Benefits Covered.--
          (1) In general.--Except as provided in section 
        1851(f)(1) with respect to high deductible/medisave 
        products, each MedicarePlus product offered under this 
        part shall provide benefits for at least the items and 
        services for which benefits are available under parts A 
        and B consistent with the standards for coverage of 
        such items and services applicable under this title.
          (2) Organization as secondary payer.--Notwithstanding 
        any other provision of law, a MedicarePlus organization 
        may (in the case of the provision of items and services 
        to an individual under this part under circumstances in 
        which payment under this title is made secondary 
        pursuant to section 1862(b)(2)) charge or authorize the 
        provider of such services to charge, in accordance with 
        the charges allowed under such law or policy--
                  (A) the insurance carrier, employer, or other 
                entity which under such law, plan, or policy is 
                to pay for the provision of such services, or
                  (B) such individual to the extent that the 
                individual has been paid under such law, plan, 
                or policy for such services.
          (3) Satisfaction of requirement.--A MedicarePlus 
        product (other than a high deductible/medisave product) 
        offered by a MedicarePlus organization satisfies 
        paragraph (1) with respect to benefits for items and 
        services if the following requirements are met:
                  (A) Fee for service providers.--In the case 
                of benefits furnished through a provider that 
                does not have a contract with the organization, 
                the product provides for at least the dollar 
                amount of payment for such items and services 
                as would otherwise be provided under parts A 
                and B.
                  (B) Participating providers.--In the case of 
                benefits furnished through a provider that has 
                such a contract, the individual's liability for 
                payment for such items and services does not 
                exceed (after taking into account any 
                deductible, which does not exceed any 
                deductible under parts A and B) the lesser of 
                the following:
                          (i) Non-medicareplus liability.--The 
                        amount of the liability that the 
                        individual would have had (based on the 
                        provider being a participating 
                        provider) if the individual had elected 
                        the non-MedicarePlus option.
                          (ii) Medicare coinsurance applied to 
                        product payment rates.--The applicable 
                        coinsurance or copayment rate (that 
                        would have applied under the non-
                        MedicarePlus option) of the payment 
                        rate provided under the contract.
  (b) Antidiscrimination.--A MedicarePlus organization may not 
deny, limit, or condition the coverage or provision of benefits 
under this part based on the health status, claims experience, 
receipt of health care, medical history, or lack of evidence of 
insurability, of an individual.
  (c) Guaranteed Issue and Renewal.--
          (1) In general.--Except as provided in this 
        subsection, a MedicarePlus organization shall provide 
        that at any time during which elections are accepted 
        under section 1805 with respect to a MedicarePlus 
        product offered by the organization, the organization 
        will accept without restrictions individuals who are 
        eligible to make such election.
          (2) Priority.--If the Secretary determines that a 
        MedicarePlus organization, in relation to a 
        MedicarePlus product it offers, has a capacity limit 
        and the number of eligible individuals who elect the 
        product under section 1805 exceeds the capacity limit, 
        the organization may limit the election of individuals 
        of the product under such section but only if priority 
        in election is provided--
                  (A) first to such individuals as have elected 
                the product at the time of the determination, 
                and
                  (B) then to other such individuals in such a 
                manner that does not discriminate among the 
                individuals (who seek to elect the product) on 
                a basis described in paragraph (1).
          (3) Limitation on termination of election.--
                  (A) In general.--Subject to subparagraph (B), 
                a MedicarePlus organization may not for any 
                reason terminate the election of any individual 
                under section 1805 for a MedicarePlus product 
                it offers.
                  (B) Basis for termination of election.--A 
                MedicarePlus organization may terminate an 
                individual's election under section 1805 with 
                respect to a MedicarePlus product it offers 
                if--
                          (i) any premiums required with 
                        respect to such product are not paid on 
                        a timely basis (consistent with 
                        standards under section 1856 that 
                        provide for a grace period for late 
                        payment of premiums),
                          (ii) the individual has engaged in 
                        disruptive behavior (as specified in 
                        such standards), or
                          (iii) the product is terminated with 
                        respect to all individuals under this 
                        part.
                Any individual whose election is so terminated 
                is deemed to have elected the Non-MedicarePlus 
                option (as defined in section 1805(a)(3)(A)).
          (C) Organization obligation with respect to election 
        forms.--Pursuant to a contract under section 1858, each 
        MedicarePlus organization receiving an election form 
        under section 1805(c)(2) shall transmit to the 
        Secretary (at such time and in such manner as the 
        Secretary may specify) a copy of such form or such 
        other information respecting the election as the 
        Secretary may specify.
          (4) Special rules for limited enrollment medicareplus 
        organizations.--
                  (A) Taft-hartley sponsors.--
                          (i) In general.--Subject to 
                        subparagraph (C), a MedicarePlus 
                        organization that is a Taft-Hartley 
                        sponsor (as defined in clause (ii)) 
                        shall limit eligibility of enrollees 
                        under this part for MedicarePlus 
                        products it offers to individuals who 
                        are entitled to obtain benefits through 
                        such products under the terms of an 
                        applicable collective bargaining 
                        agreement.
                          (ii) Taft-Hartley sponsor.--In this 
                        part and section 1805, the term ``Taft-
                        Hartley sponsor'' means, in relation to 
                        a group health plan that is established 
                        or maintained by two or more employers 
                        or jointly by one or more employers and 
                        one or more employee organizations, the 
                        association, committee, joint board of 
                        trustees, or other similar group of 
                        representatives of parties who 
                        establish or maintain the plan.
                  (B) Qualified associations.--
                          (i) In general.--Subject to 
                        subparagraph (C), a MedicarePlus 
                        organization that is a qualified 
                        association (as defined in clause 
                        (iii)) shall limit eligibility of 
                        individuals under this part for 
                        products it offers to individuals who 
                        are members of the association (or who 
                        are spouses of such individuals).
                          (ii) Limitation on termination of 
                        coverage.--Such a qualifying 
                        association offering a MedicarePlus 
                        product to an individual may not 
                        terminate coverage of the individual on 
                        the basis that the individual is no 
                        longer a member of the association 
                        except pursuant to a change of election 
                        during an open election period 
                        occurring on or after the date of the 
                        termination of membership.
                          (iii) Qualified association.--In this 
                        part and section 1805, the term 
                        ``qualified association'' means an 
                        association, religious fraternal 
                        organization, or other organization 
                        (which may be a trade, industry, or 
                        professional association, a chamber of 
                        commerce, or a public entity 
                        association) that the Secretary finds--
                                  (I) has been formed for 
                                purposes other than the sale of 
                                any health insurance and does 
                                not restrict membership based 
                                on the health status, claims 
                                experience, receipt of health 
                                care, medical history, or lack 
                                of evidence of insurability, of 
                                an individual,
                                  (II) does not exist solely or 
                                principally for the purpose of 
                                selling insurance, and
                                  (III) has at least 1,000 
                                individual members or 200 
                                employer members.
                        Such term includes a subsidiary or 
                        corporation that is wholly owned by one 
                        or more qualified organizations.
                  (C) Limitation.--Rules of eligibility to 
                carry out the previous subparagraphs of this 
                paragraph shall not have the effect of denying 
                eligibility to individuals on the basis of 
                health status, claims experience, receipt of 
                health care, medical history, or lack of 
                evidence of insurability.
                  (D) Limited enrollment medicareplus 
                organization.--In this part and section 1805, 
                the term ``limited enrollment MedicarePlus 
                organization'' means a MedicarePlus 
                organization that is a Taft-Hartley sponsor or 
                a qualified association.
                  (E) Employer, etc..--In this paragraph, the 
                terms ``employer'', ``employee organization'', 
                and ``group health plan'' have the meanings 
                given such terms for purposes of part 6 of 
                subtitle B of title I of the Employee 
                Retirement Income Security Act of 1974.
  (d) Submission and Charging of Premiums.--
          (1) In general.--Each MedicarePlus organization shall 
        file with the Secretary each year, in a form and manner 
        and at a time specified by the Secretary--
                  (A) the amount of the monthly premiums for 
                coverage under each MedicarePlus product it 
                offers under this part in each payment area (as 
                determined for purposes of section 1855) in 
                which the product is being offered; and
                  (B) the enrollment capacity in relation to 
                the product in each such area.
          (2) Amounts of premiums charged.--The amount of the 
        monthly premium charged by a MedicarePlus organization 
        for a MedicarePlus product offered in a payment area to 
        an individual under this part shall be equal to the 
        amount (if any) by which--
                  (A) the amount of the monthly premium for the 
                product for the period involved, as established 
                under paragraph (3) and submitted under 
                paragraph (1), exceeds
                  (B)(i) \1/12\ of the annual MedicarePlus 
                capitation rate specified in section 1855(b)(2) 
                for the area and period involved, or (ii) in 
                the case of a high deductible/medisave product, 
                the monthly adjusted MedicarePlus capitation 
                rate specified in section 1855(b)(1) for the 
                individual and period involved.
          (3) Uniform premium.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the premiums charged by a 
                MedicarePlus organization under this part may 
                not vary among individuals who reside in the 
                same payment area.
                  (B) Exception for high deductible/medisave 
                products.--A MedicarePlus organization shall 
                establish premiums for any high deductible/
                medisave product it offers in a payment area 
                based on each of the risk adjustment categories 
                established for purposes of determining the 
                amount of the payment to MedicarePlus 
                organizations under section 1855(b)(1) and 
                using the identical demographic and other 
                adjustments among such categories as are used 
                for such purposes.
          (4) Terms and conditions of imposing premiums.--Each 
        MedicarePlus organization shall permit the payment of 
        monthly premiums on a monthly basis and may terminate 
        election of individuals for a MedicarePlus product for 
        failure to make premium payments only in accordance 
        with subsection (c)(3)(B).
          (5) Relation of premiums and cost-sharing to 
        benefits.--In no case may the portion of a MedicarePlus 
        organization's premium rate and the actuarial value of 
        its deductibles, coinsurance, and copayments charged 
        (to the extent attributable to the minimum benefits 
        described in subsection (a)(1) and not count any amount 
        attributable to balance billing) to individuals who are 
        enrolled under this part with the organization exceed 
        the actuarial value of the coinsurance and deductibles 
        that would be applicable on the average to individuals 
        enrolled under this part with the organization (or, if 
        the Secretary finds that adequate data are not 
        available to determine that actuarial value, the 
        actuarial value of the coinsurance and deductibles 
        applicable on the average to individuals in the area, 
        in the State, or in the United States, eligible to 
        enroll under this part with the organization, or other 
        appropriate data) and entitled to benefits under part A 
        and enrolled under part B if they were not members of a 
        MedicarePlus organization.
  (e) Requirement for Additional Benefits, Part B Premium 
Discount Rebates, or Both.--
          (1) Requirement.--
                  (A) In general.--Each MedicarePlus 
                organization (in relation to a MedicarePlus 
                product it offers) shall provide that if there 
                is an excess amount (as defined in subparagraph 
                (B)) for the product for a contract year, 
                subject to the succeeding provisions of this 
                subsection, the organization shall provide to 
                individuals such additional benefits (as the 
                organization may specify), a monetary rebate 
                (paid on a monthly basis) of the part B monthly 
                premium, or a combination thereof, in an total 
                value which is at least equal to the adjusted 
                excess amount (as defined in subparagraph (C)).
                  (B) Excess amount.--For purposes of this 
                paragraph, the ``excess amount'', for an 
                organization for a product, is the amount (if 
                any) by which--
                          (i) the average of the capitation 
                        payments made to the organization under 
                        this part for the product at the 
                        beginning of contract year, exceeds
                          (ii) the actuarial value of the 
                        minimum benefits described in 
                        subsection (a)(1) under the product for 
                        individuals under this part, as 
                        determined based upon an adjusted 
                        community rate described in paragraph 
                        (5).
                  (C) Adjusted excess amount.--For purposes of 
                this paragraph, the ``adjusted excess amount'', 
                for an organization for a product, is the 
                excess amount reduced to reflect any amount 
                withheld and reserved for the organization for 
                the year under paragraph (3).
                  (D) No application to high deductible/
                medisave product.--Subparagraph (A) shall not 
                apply to a high deductible/medisave product.
                  (E) Uniform application.--This paragraph 
                shall be applied uniformly for all enrollees 
                for a product in a service area.
                  (F) Construction.--Nothing in this subsection 
                shall be construed as preventing a MedicarePlus 
                organization from providing health care 
                benefits that are in addition to the benefits 
                otherwise required to be provided under this 
                paragraph and from imposing a premium for such 
                additional benefits.
          (2) Limitation on amount of part b premium discount 
        rebate.--In no case shall the amount of a part B 
        premium discount rebate under paragraph (1)(A) exceed, 
        with respect to a month, the amount of premiums imposed 
        under part B (not taking into account section 1839(b) 
        (relating to penalty for late enrollment) or 1839(h) 
        (relating to affluence testing)), for the individual 
        for the month. Except as provided in the previous 
        sentence, a MedicarePlus organization is not authorized 
        to provide for cash or other monetary rebates as an 
        inducement for enrollment or otherwise.
          (3) Stabilization fund.--A MedicarePlus organization 
        may provide that a part of the value of an excess 
        actuarial amount described in paragraph (1) be withheld 
        and reserved in the Federal Hospital Insurance Trust 
        Fund and in the Federal Supplementary Medical Insurance 
        Trust Fund (in such proportions as the Secretary 
        determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent 
        required to stabilize and prevent undue fluctuations in 
        the additional benefits and rebates offered in those 
        subsequent periods by the organization in accordance 
        with such paragraph. Any of such value of amount 
        reserved which is not provided as additional benefits 
        described in paragraph (1)(A) to individuals electing 
        the MedicarePlus product in accordance with such 
        paragraph prior to the end of such periods, shall 
        revert for the use of such trust funds.
          (4) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds 
        that there is insufficient enrollment experience 
        (including no enrollment experience in the case of a 
        provider-sponsored organization) to determine an 
        average of the capitation payments to be made under 
        this part at the beginning of a contract period, the 
        Secretary may determine such an average based on the 
        enrollment experience of other contracts entered into 
        under this part.
          (5) Adjusted community rate.--
                  (A) In general.--For purposes of this 
                subsection, subject to subparagraph (B), the 
                term ``adjusted community rate'' for a service 
                or services means, at the election of a 
                MedicarePlus organization, either--
                          (i) the rate of payment for that 
                        service or services which the Secretary 
                        annually determines would apply to an 
                        individual electing a MedicarePlus 
                        product under this part if the rate of 
                        payment were determined under a 
                        ``community rating system'' (as defined 
                        in section 1302(8) of the Public Health 
                        Service Act, other than subparagraph 
                        (C)), or
                          (ii) such portion of the weighted 
                        aggregate premium, which the Secretary 
                        annually estimates would apply to such 
                        an individual, as the Secretary 
                        annually estimates is attributable to 
                        that service or services,
                but adjusted for differences between the 
                utilization characteristics of the individuals 
                electing coverage under this part and the 
                utilization characteristics of the other 
                enrollees with the organization (or, if the 
                Secretary finds that adequate data are not 
                available to adjust for those differences, the 
                differences between the utilization 
                characteristics of individuals selecting other 
                MedicarePlus coverage, or individuals in the 
                area, in the State, or in the United States, 
                eligible to elect MedicarePlus coverage under 
                this part and the utilization characteristics 
                of the rest of the population in the area, in 
                the State, or in the United States, 
                respectively).
                  (B) Special rule for provider-sponsored 
                organizations.--In the case of a MedicarePlus 
                organization that is a provider-sponsored 
                organization, the adjusted community rate under 
                subparagraph (A) for a MedicarePlus product may 
                be computed (in a manner specified by the 
                Secretary) using data in the general commercial 
                marketplace or (during a transition period) 
                based on the costs incurred by the organization 
                in providing such a product.
  (f) Rules Regarding Physician Participation.--
          (1) Procedures.--Each MedicarePlus organization shall 
        establish reasonable procedures relating to the 
        participation (under an agreement between a physician 
        and the organization) of physicians under MedicarePlus 
        products offered by the organization under this part. 
        Such procedures shall include--
                  (A) providing notice of the rules regarding 
                participation,
                  (B) providing written notice of participation 
                decisions that are adverse to physicians, and
                  (C) providing a process within the 
                organization for appealing adverse decisions, 
                including the presentation of information and 
                views of the physician regarding such decision.
          (2) Consultation in medical policies.--A MedicarePlus 
        organization shall consult with physicians who have 
        entered into participation agreements with the 
        organization regarding the organization's medical 
        policy, quality, and medical management procedures.
          (3) Limitations on physician incentive plans.--
                  (A) In general.--Each MedicarePlus 
                organization may not operate any physician 
                incentive plan (as defined in subparagraph (B)) 
                unless the following requirements are met:
                          (i) No specific payment is made 
                        directly or indirectly under the plan 
                        to a physician or physician group as an 
                        inducement to reduce or limit medically 
                        necessary services provided with 
                        respect to a specific individual 
                        enrolled with the organization.
                          (ii) If the plan places a physician 
                        or physician group at substantial 
                        financial risk (as determined by the 
                        Secretary) for services not provided by 
                        the physician or physician group, the 
                        organization--
                                  (I) provides stop-loss 
                                protection for the physician or 
                                group that is adequate and 
                                appropriate, based on standards 
                                developed by the Secretary that 
                                take into account the number of 
                                physicians placed at such 
                                substantial financial risk in 
                                the group or under the plan and 
                                the number of individuals 
                                enrolled with the organization 
                                who receive services from the 
                                physician or the physician 
                                group, and
                                  (II) conducts periodic 
                                surveys of both individuals 
                                enrolled and individuals 
                                previously enrolled with the 
                                organization to determine the 
                                degree of access of such 
                                individuals to services 
                                provided by the organization 
                                and satisfaction with the 
                                quality of such services.
                          (iii) The organization provides the 
                        Secretary with descriptive information 
                        regarding the plan, sufficient to 
                        permit the Secretary to determine 
                        whether the plan is in compliance with 
                        the requirements of this subparagraph.
                  (B) Physician incentive plan defined.--In 
                this paragraph, the term ``physician incentive 
                plan'' means any compensation arrangement 
                between a MedicarePlus organization and a 
                physician or physician group that may directly 
                or indirectly have the effect of reducing or 
                limiting services provided with respect to 
                individuals enrolled with the organization 
                under this part.
          (4) Exception for certain fee-for-service plans.--The 
        previous provisions of this subsection shall not apply 
        in the case of a MedicarePlus organization in relation 
        to a MedicarePlus product if the organization does not 
        have agreements between physicians and the organization 
        for the provision of benefits under the product.
  (g) Provision of Information.--A MedicarePlus organization 
shall provide the Secretary with such information on the 
organization and each MedicarePlus product it offers as may be 
required for the preparation of the information booklet 
described in section 1805(d)(3)(A).
  (h) Coordinated Acute and Long-term Care Benefits under a 
MedicarePlus Product.--Nothing in this part shall be construed 
as preventing a State from coordinating benefits under its 
MediGrant program under title XXI with those provided under a 
MedicarePlus product in a manner that assures continuity of a 
full-range of acute care and long-term care services to poor 
elderly or disabled individuals eligible for benefits under 
this title and under such program.
  (i) Transitional File and Use for Certain Requirements.--
          (1) In general.--In the case of a MedicarePlus 
        product proposed to be offered before the end of the 
        transition period (as defined in section 
        1805(e)(1)(B)), by a MedicarePlus organization 
        described in section 1851(g)(3) or by a MedicarePlus 
        organization with a contract in effect under section 
        1858, if the organization submits complete information 
        to the Secretary regarding the product demonstrating 
        that the product meets the requirements and standards 
        under subsections (a), (d), and (e) (relating to 
        benefits and premiums), the product shall be deemed as 
        meeting such requirements and standards under such 
        subsections unless the Secretary disapproves the 
        product within 60 days after the date of submission of 
        the complete information.
          (2) Construction.--Nothing in paragraph (1) shall be 
        construed as waiving the requirement of a contract 
        under section 1858 or waiving requirements and 
        standards not referred to in paragraph (1).


                      patient protection standards


  Sec. 1853. (a) Disclosure to Enrollees.--A MedicarePlus 
organization shall disclose in clear, accurate, and 
standardized form, information regarding all of the following 
for each MedicarePlus product it offers:
          (1) Benefits under the MedicarePlus product offered, 
        including exclusions from coverage and, if it is a high 
        deductible/medisave product, a comparison of benefits 
        under such a product with benefits under other 
        MedicarePlus products.
          (2) Rules regarding prior authorization or other 
        review requirements that could result in nonpayment.
          (3) Potential liability for cost-sharing for out-of-
        network services.
          (4) The number, mix, and distribution of 
        participating providers.
          (5) The financial obligations of the enrollee, 
        including premiums, deductibles, co-payments, and 
        maximum limits on out-of-pocket losses for items and 
        services (both in and out of network).
          (6) Statistics on enrollee satisfaction with the 
        product and organization, including rates of 
        reenrollment.
          (7) Enrollee rights and responsibilities, including 
        the grievance process provided under subsection (f).
          (8) A statement that the use of the 911 emergency 
        telephone number is appropriate in emergency situations 
        and an explanation of what constitutes an emergency 
        situation.
          (9) A description of the organization's quality 
        assurance program under subsection (d).
Such information shall be disclosed to each enrollee under this 
part at the time of enrollment and at least annually 
thereafter.
  (b) Access to Services.--
          (1) In general.--A MedicarePlus organization offering 
        a MedicarePlus product may restrict the providers from 
        whom the benefits under the product are provided so 
        long as--
                  (A) the organization makes such benefits 
                available and accessible to each individual 
                electing the product within the product service 
                area with reasonable promptness and in a manner 
                which assures continuity in the provision of 
                benefits;
                  (B) when medically necessary the organization 
                makes such benefits available and accessible 24 
                hours a day and 7 days a week;
                  (C) the product provides for reimbursement 
                with respect to services which are covered 
                under subparagraphs (A) and (B) and which are 
                provided to such an individual other than 
                through the organization, if--
                          (i) the services were medically 
                        necessary and immediately required 
                        because of an unforeseen illness, 
                        injury, or condition, and
                          (ii) it was not reasonable given the 
                        circumstances to obtain the services 
                        through the organization; and
                  (D) coverage is provided for emergency 
                services (as defined in paragraph (4)) without 
                regard to prior authorization or the emergency 
                care provider's contractual relationship with 
                the organization.
          (2) Minimum payment levels where providing point-of-
        service coverage.--If a MedicarePlus product provides 
        benefits for items and services (not described in 
        paragraph (1)(C)) through a network of providers and 
        also permits payment to be made under the product for 
        such items and services not provided through such a 
        network, the payment level under the product with 
        respect to such items and services furnished outside 
        the network shall be at least 70 percent (or, if the 
        effective cost-sharing rate is 50 percent, at least 35 
        percent) of the lesser of--
                  (A) the payment basis (determined without 
                regard to deductibles and cost-sharing) that 
                would have applied for such items and services 
                under parts A and B, or
                  (B) the amount charged by the entity 
                furnishing such items and services.
          (3) Protection of enrollees for certain emergency 
        services.--
                  (A) Participating providers.--In the case of 
                emergency services described in subparagraph 
                (C) which are furnished by a participating 
                physician or provider of services to an 
                individual enrolled with a MedicarePlus 
                organization under this section, the applicable 
                participation agreement is deemed to provide 
                that the physician or provider of services will 
                accept as payment in full from the organization 
                the amount that would be payable to the 
                physician or provider of services under part B 
                and from the individual under such part, if the 
                individual were not enrolled with such an 
                organization under this part.
                  (B) Nonparticipating providers.--In the case 
                of emergency services described in subparagraph 
                (C) which are furnished by a nonparticipating 
                physician, the limitations on actual charges 
                for such services otherwise applicable under 
                part B (to services furnished by individuals 
                not enrolled with a MedicarePlus organization 
                under this section) shall apply in the same 
                manner as such limitations apply to services 
                furnished to individuals not enrolled with such 
                an organization.
                  (C) Emergency services described.--The 
                emergency services described in this 
                subparagraph are emergency services which are 
                furnished to an enrollee of a MedicarePlus 
                organization under this part by a physician or 
                provider of services that is not under a 
                contract with the organization.
          (4) Definition of emergency services.--In this 
        subsection, the term ``emergency services'' means, with 
        respect to an individual enrolled with an organization, 
        covered inpatient and outpatient services that--
                  (A) are furnished by an appropriate source 
                other than the organization,
                  (B) are needed immediately because of an 
                injury or sudden illness, and
                  (C) are needed because the time required to 
                reach the organization's providers or suppliers 
                would have meant risk of serious damage to the 
                patient's health.
  (c) Confidentiality and Accuracy of Enrollee Records.--Each 
MedicarePlus organization shall establish procedures--
          (1) to safeguard the privacy of individually 
        identifiable enrollee information, and
          (2) to maintain accurate and timely medical records 
        for enrollees.
  (d) Quality Assurance Program.--
          (1) In general.--Each MedicarePlus organization must 
        have arrangements, established in accordance with 
        regulations of the Secretary, for an ongoing quality 
        assurance program for health care services it provides 
        to such individuals.
          (2) Elements of program.--The quality assurance 
        program shall--
                  (A) stress health outcomes;
                  (B) provide for the establishment of written 
                protocols for utilization review, based on 
                current standards of medical practice;
                  (C) provide review by physicians and other 
                health care professionals of the process 
                followed in the provision of such health care 
                services;
                  (D) monitors and evaluates high volume and 
                high risk services and the care of acute and 
                chronic conditions;
                  (E) evaluates the continuity and coordination 
                of care that enrollees receive;
                  (F) has mechanisms to detect both 
                underutilization and overutilization of 
                services;
                  (G) after identifying areas for improvement, 
                establishes or alters practice parameters;
                  (H) takes action to improve quality and 
                assesses the effectiveness of such action 
                through systematic follow-up;
                  (I) makes available information on quality 
                and outcomes measures to facilitate beneficiary 
                comparison and choice of health coverage 
                options (in such form and on such quality and 
                outcomes measures as the Secretary determines 
                to be appropriate);
                  (J) is evaluated on an ongoing basis as to 
                its effectiveness; and
                  (K) provide for external accreditation or 
                review, by a utilization and quality control 
                peer review organization under part B of title 
                XI or other qualified independent review 
                organization, of the quality of services 
                furnished by the organization meets 
                professionally recognized standards of health 
                care (including providing adequate access of 
                enrollees to services).
          (3) Exception for certain fee-for-service plans.--
        Paragraph (1) and subsection (c)(2) shall not apply in 
        the case of a MedicarePlus organization in relation to 
        a MedicarePlus product to the extent the organization 
        provides for coverage of benefits without restrictions 
        relating to utilization and without regard to whether 
        the provider has a contract or other arrangement with 
        the plan for the provision of such benefits.
          (4) Treatment of accreditation.--The Secretary shall 
        provide that a MedicarePlus organization is deemed to 
        meet the requirements of paragraphs (1) and (2) of this 
        subsection and subsection (c) if the organization is 
        accredited (and periodically reaccredited) by a private 
        organization under a process that the Secretary has 
        determined assures that the organization meets 
        standards that are no less stringent than the standards 
        established under section 1856 to carry out this 
        subsection and subsection (c).
  (e) Coverage Determinations.--
          (1) Decisions on nonemergency care.--A MedicarePlus 
        organization shall make determinations regarding 
        authorization requests for nonemergency care on a 
        timely basis, depending on the urgency of the 
        situation.
          (2) Appeals.--
                  (A) In general.--Appeals from a determination 
                of an organization denying coverage shall be 
                decided within 30 days of the date of receipt 
                of medical information, but not later than 60 
                days after the date of the decision.
                  (B) Physician decision on certain appeals.--
                Appeal decisions relating to a determination to 
                deny coverage based on a lack of medical 
                necessity shall be made only by a physician.
                  (C) Emergency cases.--Appeals from such a 
                determination involving a life-threatening or 
                emergency situation shall be decided on an 
                expedited basis.
  (f) Grievances and Appeals.--
          (1) Grievance mechanism.--Each MedicarePlus 
        organization must provide meaningful procedures for 
        hearing and resolving grievances between the 
        organization (including any entity or individual 
        through which the organization provides health care 
        services) and enrollees under this part.
          (2) Appeals.--An enrollee with an organization under 
        this part who is dissatisfied by reason of the 
        enrollee's failure to receive any health service to 
        which the enrollee believes the enrollee is entitled 
        and at no greater charge than the enrollee believes the 
        enrollee is required to pay is entitled, if the amount 
        in controversy is $100 or more, to a hearing before the 
        Secretary to the same extent as is provided in section 
        205(b), and in any such hearing the Secretary shall 
        make the organization a party. If the amount in 
        controversy is $1,000 or more, the individual or 
        organization shall, upon notifying the other party, be 
        entitled to judicial review of the Secretary's final 
        decision as provided in section 205(g), and both the 
        individual and the organization shall be entitled to be 
        parties to that judicial review. In applying sections 
        205(b) and 205(g) as provided in this subparagraph, and 
        in applying section 205(l) thereto, any reference 
        therein to the Commissioner of Social Security or the 
        Social Security Administration shall be considered a 
        reference to the Secretary or the Department of Health 
        and Human Services, respectively.
          (3) Coordination with secretary of labor.--The 
        Secretary shall consult with the Secretary of Labor so 
        as to ensure that the requirements of this subsection, 
        as they apply in the case of grievances referred to in 
        paragraph (1) to which section 503 of the Employee 
        Retirement Income Security Act of 1974 applies, are 
        applied in a manner consistent with the requirements of 
        such section 503.
  (g) Information on Advance Directives.--Each MedicarePlus 
organization shall meet the requirement of section 1866(f) 
(relating to maintaining written policies and procedures 
respecting advance directives).
  (h) Approval of Marketing Materials.--
          (1) Submission.--Each MedicarePlus organization may 
        not distribute marketing materials unless--
                  (A) at least 45 days before the date of 
                distribution the organization has submitted the 
                material to the Secretary for review, and
                  (B) the Secretary has not disapproved the 
                distribution of such material.
          (2) Review.--The standards established under section 
        1856 shall include guidelines for the review of all 
        such material submitted and under such guidelines the 
        Secretary shall disapprove such material if the 
        material is materially inaccurate or misleading or 
        otherwise makes a material misrepresentation.
          (3) Deemed approval (1-stop shopping).--In the case 
        of material that is submitted under paragraph (1)(A) to 
        the Secretary or a regional office of the Department of 
        Health and Human Services and the Secretary or the 
        office has not disapproved the distribution of 
        marketing materials under paragraph (1)(B) with respect 
        to a MedicarePlus product in an area, the Secretary is 
        deemed not to have disapproved such distribution in all 
        other areas covered by the product and organization.
          (4) Prohibition of certain marketing practices.--Each 
        MedicarePlus organization shall conform to fair 
        marketing standards in relation to MedicarePlus 
        products offered under this part, included in the 
        standards established under section 1856. Such 
        standards shall include a prohibition against an 
        organization (or agent of such an organization) 
        completing any portion of any election form under 
        section 1805 on behalf of any individual.


                    provider-sponsored organizations


  Sec. 1854. (a) Provider-Sponsored Organization Defined.--
          (1) In general.--In this part, the term ``provider-
        sponsored organization'' means a public or private 
        entity that (in accordance with standards established 
        under subsection (b)) is a provider, or group of 
        affiliated providers, that provides a substantial 
        proportion (as defined by the Secretary under such 
        standards) of the health care items and services under 
        the contract under this part directly through the 
        provider or affiliated group of providers.
          (2) Substantial proportion.--In defining what is a 
        ``substantial proportion'' for purposes of paragraph 
        (1), the Secretary--
                  (A) shall take into account the need for such 
                an organization to assume responsibility for a 
                substantial proportion of services in order to 
                assure financial stability and the practical 
                difficulties in such an organization 
                integrating a very wide range of service 
                providers; and
                  (B) may vary such proportion based upon 
                relevant differences among organizations, such 
                as their location in an urban or rural area.
          (3) Affiliation.--For purposes of this subsection, a 
        provider is ``affiliated'' with another provider if, 
        through contract, ownership, or otherwise--
                  (A) one provider, directly or indirectly, 
                controls, is controlled by, or is under common 
                control with the other,
                  (B) each provider is a participant in a 
                lawful combination under which each provider 
                shares, directly or indirectly, substantial 
                financial risk in connection with their 
                operations,
                  (C) both providers are part of a controlled 
                group of corporations under section 1563 of the 
                Internal Revenue Code of 1986, or
                  (D) both providers are part of an affiliated 
                service group under section 414 of such Code.
          (4) Control.--For purposes of paragraph (3), control 
        is presumed to exist if one party, directly or 
        indirectly, owns, controls, or holds the power to vote, 
        or proxies for, not less than 51 percent of the voting 
        rights or governance rights of another.
  (b) Process for Establishing Standards for Provider-Sponsored 
Organizations.--For process of establishing of standards for 
provider-sponsored organizations, see section 1856(c).
  (c) Process for State Certification of Provider-Sponsored 
Organizations.--For process of State certification of provider-
sponsored organizations, see section 1857(c).
  (d) Preemption of State Insurance Licensing Requirements.--
          (1) In general.--This section supersedes any State 
        law which--
                  (A) requires that a provider-sponsored 
                organization meet requirements for insurers of 
                health services or health maintenance 
                organizations doing business in the State with 
                respect to initial capitalization and 
                establishment of financial reserves against 
                insolvency, or
                  (B) imposes requirements that would have the 
                effect of prohibiting the organization from 
                complying with the applicable requirements of 
                this part,
        insofar as such the law applies to individuals enrolled 
        with the organization under this part.
          (2) Exception.--Paragraph (1) shall not apply with 
        respect to any State law to the extent that such law 
        provides standards or requirements, or provides for 
        enforcement thereof, so as to meet the requirements of 
        section 1857(c)(2) with respect to approval by the 
        Secretary of State certification requirements 
        thereunder.
          (3) Construction.--Nothing in this subsection shall 
        be construed as affecting the operation of section 514 
        of the Employee Retirement Income Security Act of 1974.


                 payments to medicareplus organizations


  Sec. 1855. (a) Payments.--
          (1) In general.--Under a contract under section 1858 
        the Secretary shall pay to each MedicarePlus 
        organization, with respect to coverage of an individual 
        under this part in a payment area for a month, an 
        amount equal to the monthly adjusted MedicarePlus 
        capitation rate (as provided under subsection (b)) with 
        respect to that individual for that area.
          (2) Annual announcement.--The Secretary shall 
        annually determine, and shall announce (in a manner 
        intended to provide notice to interested parties) not 
        later than September 7 before the calendar year 
        concerned--
                  (A) the annual MedicarePlus capitation rate 
                for each payment area for the year, and
                  (B) the factors to be used in adjusting such 
                rates under subsection (b) for payments for 
                months in that year.
          (3) Advance notice of methodological changes.--At 
        least 45 days before making the announcement under 
        paragraph (2) for a year, the Secretary shall provide 
        for notice to MedicarePlus organizations of proposed 
        changes to be made in the methodology or benefit 
        coverage assumptions from the methodology and 
        assumptions used in the previous announcement and shall 
        provide such organizations an opportunity to comment on 
        such proposed changes.
          (4) Explanation of assumptions.--In each announcement 
        made under paragraph (2) for a year, the Secretary 
        shall include an explanation of the assumptions 
        (including any benefit coverage assumptions) and 
        changes in methodology used in the announcement in 
        sufficient detail so that MedicarePlus organizations 
        can compute monthly adjusted MedicarePlus capitation 
        rates for classes of individuals located in each 
        payment area which is in whole or in part within the 
        service area of such an organization.
  (b) Monthly Adjusted MedicarePlus Capitation Rate.--
          (1) In general.--For purposes of this section, the 
        ``monthly adjusted MedicarePlus capitation rate'' under 
        this subsection, for a month in a year for an 
        individual in a payment area (specified under paragraph 
        (3)) and in a class (established under paragraph (4)), 
        is \1/12\ of the annual MedicarePlus capitation rate 
        specified in paragraph (2) for that area for the year, 
        adjusted to reflect the actuarial value of benefits 
        under this title with respect to individuals in such 
        class compared to the national average for individuals 
        in all classes.
          (2) Annual medicareplus capitation rates.--For 
        purposes of this section, the annual MedicarePlus 
        capitation rate for a payment area for a year is equal 
        to the annual MedicarePlus capitation rate for the area 
        for the previous year (or, in the case of 1996, the 
        average annual per capita rate of payment described in 
        section 1876(a)(1)(C) for the area for 1995) increased 
        by the per capita growth rate for that area and year 
        (as determined under subsection (c)).
          (3) Payment area defined.--In this section, the term 
        ``payment area'' means a county (or equivalent area 
        specified by the Secretary), except that in the case of 
        the population group described in paragraph (5)(C), the 
        payment area shall be each State.
          (4) Classes.--
                  (A) In general.--For purposes of this 
                section, the Secretary shall define appropriate 
                classes of enrollees, consistent with paragraph 
                (5), based on age, gender, welfare status, 
                institutionalization, and such other factors as 
                the Secretary determines to be appropriate, so 
                as to ensure actuarial equivalence. The 
                Secretary may add to, modify, or substitute for 
                such classes, if such changes will improve the 
                determination of actuarial equivalence.
                  (B) Research.--The Secretary shall conduct 
                such research as may be necessary to provide 
                for greater accuracy in the adjustment of 
                capitation rates under this subsection. Such 
                research may include research into the addition 
                or modification of classes under subparagraph 
                (A). The Secretary shall submit to Congress a 
                report on such research by not later than 
                January 1, 1997.
          (5) Division of medicare population.--In carrying out 
        paragraph (4) and this section, the Secretary shall 
        recognize the following separate population groups:
                  (A) Aged.--Individuals 65 years of age or 
                older who are not described in subparagraph 
                (C).
                  (B) Disabled.--Disabled individuals who are 
                under 65 years of age and not described in 
                subparagraph (C).
                  (C) Individuals with end stage renal 
                disease.--Individuals who are determined to 
                have end stage renal disease.
  (c) Per Capita Growth Rates.--
          (1) For 1996.--
                  (A) In general.--For purposes of this section 
                and subject to subparagraph (B), the per capita 
                growth rates for 1996, for a payment area 
                assigned to a service utilization cohort under 
                subsection (d), shall be the following:
                          (i) Lowest service utilization 
                        cohort.--For areas assigned to the 
                        lowest service utilization cohort, 9.7 
                        percent.
                          (ii) Lower service utilization 
                        cohort.--For areas assigned to the 
                        lower service utilization cohort, 8.0 
                        percent.
                          (iii) Median service utilization 
                        cohort.--For areas assigned to the 
                        median service utilization cohort, 5.3 
                        percent.
                          (iv) Higher service utilization 
                        cohort.--For areas assigned to the 
                        higher service utilization cohort, 4.7 
                        percent.
                          (v) Highest service utilization 
                        cohort.--For areas assigned to the 
                        highest service utilization cohort, 4.0 
                        percent.
                  (B) Budget neutral adjustment.--The Secretary 
                shall adjust the per capita growth rates 
                specified in subparagraph (A) for all the areas 
                by such uniform factor as may be necessary to 
                assure that the total capitation payments under 
                this section during 1996 are the same as the 
                amount such payments would have been if the per 
                capita growth rate for all such areas for 1996 
                were equal to the national average per capita 
                growth rate, specified in paragraph (3) for 
                1996.
          (2) For subsequent years.--
                  (A) In general.--For purposes of this section 
                and subject to subparagraph (B), the Secretary 
                shall compute a per capita growth rate for each 
                year after 1996, for each payment area as 
                assigned to a service utilization cohort under 
                subsection (d), consistent with the following 
                rules:
                          (i) Median service utilization cohort 
                        set at national average per capita 
                        growth rate.--The per capita growth 
                        rate for areas assigned to the median 
                        service utilization cohort for the year 
                        shall be the national average per 
                        capita growth rate for the year (as 
                        specified under paragraph (3)).
                          (ii) Highest service utilization 
                        cohort set at 75 percent of national 
                        average per capita growth rate.--The 
                        per capita growth rate for areas 
                        assigned to the highest service 
                        utilization cohort for the year shall 
                        be 75 percent of the national average 
                        per capita growth rate for the year.
                          (iii) Lowest service utilization 
                        cohort set at 187.5 percent of national 
                        average per capita growth rate.--The 
                        per capita growth rate for areas 
                        assigned to the lowest service 
                        utilization cohort for the year shall 
                        be 187.5 percent of the national 
                        average per capita growth rate for the 
                        year.
                          (iv) Lower service utilization cohort 
                        set at 150 percent of national average 
                        per capita growth rate.--
                                  (I) In general.--Subject to 
                                subclause (II), the per capita 
                                growth rate for areas assigned 
                                to the lower service 
                                utilization cohort for the year 
                                shall be 150 percent of the 
                                national average per capita 
                                growth rate for the year.
                                  (II) Adjustment.--If the 
                                Secretary has established under 
                                clause (v) the per capita 
                                growth rate for areas assigned 
                                to the higher service 
                                utilization cohort for the year 
                                at 75 percent of the national 
                                average per capita growth rate, 
                                the Secretary may provide for a 
                                reduced per capita growth rate 
                                under subclause (I) to the 
                                extent necessary to comply with 
                                subparagraph (B).
                          (v) Higher service utilization 
                        cohort.--The per capita growth rate for 
                        areas assigned to the higher service 
                        utilization cohort for the year shall 
                        be such percent (not less than 75 
                        percent) of the national average per 
                        capita growth rate, as the Secretary 
                        may determine consistent with 
                        subparagraph (B).
                  (B) Average per capita growth rate at 
                national average to assure budget neutrality.--
                The Secretary shall compute per capita growth 
                rates for a year under subparagraph (A) in a 
                manner so that the weighted average per capita 
                growth rate for all areas for the year 
                (weighted to reflect the number of medicare 
                beneficiaries in each area) is equal to the 
                national average per capita growth rate under 
                paragraph (3) for the year.
          (3) National average per capita growth rates.--In 
        this subsection, the ``national average per capita 
        growth rate'' for--
                  (A) 1996 is 5.3 percent,
                  (B) 1997 is 3.8 percent,
                  (C) 1998 is 4.6 percent,
                  (D) 1999 is 4.3 percent,
                  (E) 2000 is 3.8 percent,
                  (F) 2001 is 5.5 percent,
                  (G) 2002 is 5.6 percent, and
                  (H) each subsequent year is 5.0 percent.
  (d) Assignment of Payment Areas to Service Utilization 
Cohorts.--
          (1) In general.--For purposes of determining per 
        capita growth rates under subsection (c) for areas for 
        a year, the Secretary shall assign each payment area to 
        a service utilization cohort (based on the service 
        utilization index value for that area determined under 
        paragraph (2)) as follows:
                  (A) Lowest service utilization cohort.--Areas 
                with a service utilization index value of less 
                than .80 shall be assigned to the lowest 
                service utilization cohort.
                  (B) Lower service utilization cohort.--Areas 
                with a service utilization index value of at 
                least .80 but less than .90 shall be assigned 
                to the lower service utilization cohort.
                  (C) Median service utilization cohort.--Areas 
                with a service utilization index value of at 
                least .90 but less than 1.10 shall be assigned 
                to the median service utilization cohort.
                  (D) Higher service utilization cohort.--Areas 
                with a service utilization index value of at 
                least 1.10 but less than 1.20 shall be assigned 
                to the higher service utilization cohort.
                  (E) Highest service utilization cohort.--
                Areas with a service utilization index value of 
                at least 1.20 shall be assigned to the highest 
                service utilization cohort.
          (2) Determination of service utilization index 
        values.--In order to determine the per capita growth 
        rate for a payment area for each year (beginning with 
        1996), the Secretary shall determine for such area and 
        year a service utilization index value, which is equal 
        to--
                  (A) the annual MedicarePlus capitation rate 
                under this section for the area for the year in 
                which the determination is made (or, in the 
                case of 1996, the average annual per capita 
                rate of payment (described in section 
                1876(a)(1)(C)) for the area for 1995); divided 
                by
                  (B) the input-price-adjusted annual national 
                MedicarePlus capitation rate (as determined 
                under paragraph (3)) for that area for the year 
                in which the determination is made.
          (3) Determination of input-price-adjusted rates.--
                  (A) In general.--For purposes of paragraph 
                (2), the ``input-price-adjusted annual national 
                MedicarePlus capitation rate'' for a payment 
                area for a year is equal to the sum, for all 
                the types of medicare services (as classified 
                by the Secretary), of the product (for each 
                such type) of--
                          (i) the national standardized 
                        MedicarePlus capitation rate 
                        (determined under subparagraph (B)) for 
                        the year,
                          (ii) the proportion of such rate for 
                        the year which is attributable to such 
                        type of services, and
                          (iii) an index that reflects (for 
                        that year and that type of services) 
                        the relative input price of such 
                        services in the area compared to the 
                        national average input price of such 
                        services.
                In applying clause (iii), the Secretary shall, 
                subject to subparagraph (C), apply those 
                indices under this title that are used in 
                applying (or updating) national payment rates 
                for specific areas and localities.
                  (B) National standardized medicareplus 
                capitation rate.--In this paragraph, the 
                ``national standardized MedicarePlus capitation 
                rate'' for a year is equal to--
                          (i) the sum (for all payment areas) 
                        of the product of (I) the annual 
                        MedicarePlus capitation rate for that 
                        year for the area under subsection 
                        (b)(2), and (II) the average number of 
                        medicare beneficiaries residing in that 
                        area in the year; divided by
                          (ii) the total average number of 
                        medicare beneficiaries residing in all 
                        the payment areas for that year.
                  (C) Special rules for 1996.--In applying this 
                paragraph for 1996--
                          (i) medicare services shall be 
                        divided into 2 types of services: part 
                        A services and part B services;
                          (ii) the proportions described in 
                        subparagraph (A)(ii) for such types of 
                        services shall be--
                                  (I) for part A services, the 
                                ratio (expressed as a 
                                percentage) of the average 
                                annual per capita rate of 
                                payment for the area for part A 
                                for 1995 to the total average 
                                annual per capita rate of 
                                payment for the area for parts 
                                A and B for 1995, and
                                  (II) for part B services, 100 
                                percent minus the ratio 
                                described in subclause (I);
                          (iii) for the part A services, 70 
                        percent of payments attributable to 
                        such services shall be adjusted by the 
                        index used under section 1886(d)(3)(E) 
                        to adjust payment rates for relative 
                        hospital wage levels for hospitals 
                        located in the payment area involved;
                          (iv) for part B services--
                                  (I) 66 percent of payments 
                                attributable to such services 
                                shall be adjusted by the index 
                                of the geographic area factors 
                                under section 1848(e) used to 
                                adjust payment rates for 
                                physicians' services furnished 
                                in the payment area, and
                                  (II) of the remaining 34 
                                percent of the amount of such 
                                payments, 70 percent shall be 
                                adjusted by the index described 
                                in clause (iii);
                          (v) the index values shall be 
                        computed based only on the beneficiary 
                        population described in subsection 
                        (b)(5)(A).
                The Secretary may continue to apply the rules 
                described in this subparagraph (or similar 
                rules) for 1997.
  (e) Payment Process.--
          (1) In general.--Subject to subsection (f), the 
        Secretary shall make monthly payments under this 
        section in advance and in accordance with the rate 
        determined under subsection (a) to the plan for each 
        individual enrolled with a MedicarePlus organization 
        under this part.
          (2) Adjustment to reflect number of enrollees.--
                  (A) In general.--The amount of payment under 
                this subsection may be retroactively adjusted 
                to take into account any difference between the 
                actual number of individuals enrolled with an 
                organization under this part and the number of 
                such individuals estimated to be so enrolled in 
                determining the amount of the advance payment.
                  (B) Special rule for certain enrollees.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary may make 
                        retroactive adjustments under 
                        subparagraph (A) to take into account 
                        individuals enrolled during the period 
                        beginning on the date on which the 
                        individual enrolls with a MedicarePlus 
                        organization under a product operated, 
                        sponsored, or contributed to by the 
                        individual's employer or former 
                        employer (or the employer or former 
                        employer of the individual's spouse) 
                        and ending on the date on which the 
                        individual is enrolled in the 
                        organization under this part, except 
                        that for purposes of making such 
                        retroactive adjustments under this 
                        subparagraph, such period may not 
                        exceed 90 days.
                          (ii) Exception.--No adjustment may be 
                        made under clause (i) with respect to 
                        any individual who does not certify 
                        that the organization provided the 
                        individual with the disclosure 
                        statement described in section 1853(a) 
                        at the time the individual enrolled 
                        with the organization.
  (f) Special Rules for Individuals Electing High Deductible/
Medisave Product.--
          (1) In general.--In the case of an individual who has 
        elected a high deductible/medisave product, 
        notwithstanding the preceding provisions of this 
        section--
                  (A) the amount of the payment to the 
                MedicarePlus organization offering the high 
                deductible/medisave product shall not exceed 
                the premium for the product, and
                  (B) subject to paragraph (2), the difference 
                between the amount of payment that would 
                otherwise be made and the amount of payment to 
                such organization shall be made directly into a 
                MedicarePlus MSA established (and, if 
                applicable, designated) by the individual under 
                paragraph (2).
          (2) Establishment and designation of medicareplus 
        medical savings account as requirement for payment of 
        contribution.--In the case of an individual who has 
        elected coverage under a high deductible/medisave 
        product, no payment shall be made under paragraph 
        (1)(B) on behalf of an individual for a month unless 
        the individual--
                  (A) has established before the beginning of 
                the month (or by such other deadline as the 
                Secretary may specify) a MedicarePlus MSA (as 
                defined in section 137(b) of the Internal 
                Revenue Code of 1986), and
                  (B) if the individual has established more 
                than one MedicarePlus MSA, has designated one 
                of such accounts as the individual's 
                MedicarePlus MSA for purposes of this part.
        Under rules under this section, such an individual may 
        change the designation of such account under 
        subparagraph (B) for purposes of this part.
          (3) Lump sum deposit of medical savings account 
        contribution.--In the case of an individual electing a 
        high deductible/medisave product effective beginning 
        with a month in a year, the amount of the contribution 
        to the MedicarePlus MSA on behalf of the individual for 
        that month and all successive months in the year shall 
        be deposited during that first month. In the case of a 
        termination of such an election as of a month before 
        the end of a year, the Secretary shall provide for a 
        procedure for the recovery of deposits attributable to 
        the remaining months in the year.
  (g) Payments From Trust Fund.--The payment to a MedicarePlus 
organization under this section for individuals enrolled under 
this part with the organization, and payments to a MedicarePlus 
MSA under subsection (f)(1)(B), shall be made from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary 
Medical Insurance Trust Fund in such proportion as the 
Secretary determines reflects the relative weight that benefits 
under part A and under part B represents of the actuarial value 
of the total benefits under this title.
  (h) Special Rule for Certain Inpatient Hospital Stays.--In 
the case of an individual who is receiving inpatient hospital 
services from a subsection (d) hospital (as defined in section 
1886(d)(1)(B)) as of the effective date of the individual's--
          (1) election under this part of a MedicarePlus 
        product offered by a MedicarePlus organization--
                  (A) payment for such services until the date 
                of the individual's discharge shall be made 
                under this title through the MedicarePlus 
                product or Non-MedicarePlus option (as the case 
                may be) elected before the election with such 
                organization,
                  (B) the elected organization shall not be 
                financially responsible for payment for such 
                services until the date after the date of the 
                individual's discharge, and
                  (C) the organization shall nonetheless be 
                paid the full amount otherwise payable to the 
                organization under this part; or
          (2) termination of election with respect to a 
        MedicarePlus organization under this part--
                  (A) the organization shall be financially 
                responsible for payment for such services after 
                such date and until the date of the 
                individual's discharge,
                  (B) payment for such services during the stay 
                shall not be made under section 1886(d) or by 
                any succeeding MedicarePlus organization, and
                  (C) the terminated organization shall not 
                receive any payment with respect to the 
                individual under this part during the period 
                the individual is not enrolled.


 establishment of standards for medicareplus organizations and products


  Sec. 1856. (a) Standards Applicable to State-Regulated 
Organizations and Products.--
          (1) Recommendations of naic.--The Secretary shall 
        request the National Association of Insurance 
        Commissioners to develop and submit to the Secretary, 
        not later than 12 months after the date of the 
        enactment of the Medicare Preservation Act of 1995, 
        proposed standards consistent with the requirements of 
        this part for MedicarePlus organizations (other than 
        Taft-Hartley sponsors and provider-sponsored 
        organizations) and MedicarePlus products offered by 
        such organizations, except that such proposed standards 
        may relate to MedicarePlus organizations that are 
        qualified associations only with respect to 
        MedicarePlus products offered by them and only if such 
        products are issued by organizations to which section 
        1851(b)(1) applies.
          (2) Review.--If the Association submits such 
        standards on a timely basis, the Secretary shall review 
        such standards to determine if the standards meet the 
        requirements of the part. The Secretary shall complete 
        the review of the standards not later than 90 days 
        after the date of their submission. The Secretary shall 
        promulgate such proposed standards to apply to 
        organizations and products described in paragraph (1) 
        except to the extent that the Secretary modifies such 
        proposed standards because they do not meet such 
        requirements.
          (3) Failure to submit.--If the Association does not 
        submit such standards on a timely basis, the Secretary 
        shall promulgate such standards by not later than the 
        date the Secretary would otherwise have been required 
        to promulgate standards under paragraph (2).
          (4) Use of interim rules.--For the period in which 
        this part is in effect and standards are being 
        developed and established under the preceding 
        provisions of this subsection, the Secretary shall 
        provide by not later than June 1, 1996, for the 
        application of such interim standards (without regard 
        to any requirements for notice and public comment) as 
        may be appropriate to provide for the expedited 
        implementation of this part. Such interim standards 
        shall not apply after the date standards are 
        established under the preceding provisions of this 
        subsection.
  (b) Taft-Hartley Sponsors, Qualified Associations, and 
Products.--
          (1) In general.--The Secretary shall develop and 
        promulgate by regulation standards consistent with the 
        requirements of this part for Taft-Hartley sponsors, 
        for qualified associations, and for MedicarePlus 
        products offered by such organizations (other than 
        MedicarePlus products offered by qualified associations 
        that are issued by organizations to which section 
        1851(b)(1) applies).
          (2) Consultation with labor.--The Secretary shall 
        consult with the Secretary of Labor with respect to 
        such standards for such sponsors and products.
          (3) Timing.--Standards under this subsection shall be 
        promulgated at or about the time standards are 
        promulgated under subsection (a).
  (c) Establishment of Standards for Provider-Sponsored 
Organizations.--
          (1) In general.--The Secretary shall establish, on an 
        expedited basis and using a negotiated rulemaking 
        process under subchapter 3 of chapter 5 of title 5, 
        United States Code, standards that entities must meet 
        to qualify as provider-sponsored organizations under 
        this part.
          (2) Publication of notice.--In carrying out the 
        rulemaking process under this subsection, the 
        Secretary, after consultation with the National 
        Association of Insurance Commissioners, the American 
        Academy of Actuaries, organizations representative of 
        medicare beneficiaries, and other interested parties, 
        shall publish the notice provided for under section 
        564(a) of title 5, United States Code, by not later 
        than 45 days after the date of the enactment of 
        Medicare Preservation Act of 1995.
          (3) Target date for publication of rule.--As part of 
        the notice under paragraph (2), and for purposes of 
        this subsection, the ``target date for publication'' 
        (referred to in section 564(a)(5) of such title) shall 
        be September 1, 1996.
          (4) Abbreviated period for submission of comments.--
        In applying section 564(c) of such title under this 
        subsection, ``15 days'' shall be substituted for ``30 
        days''.
          (5) Appointment of negotiated rulemaking committee 
        and facilitator.--The Secretary shall provide for--
                  (A) the appointment of a negotiated 
                rulemaking committee under section 565(a) of 
                such title by not later than 30 days after the 
                end of the comment period provided for under 
                section 564(c) of such title (as shortened 
                under paragraph (4)), and
                  (B) the nomination of a facilitator under 
                section 566(c) of such title by not later than 
                10 days after the date of appointment of the 
                committee.
          (6) Preliminary committee report.--The negotiated 
        rulemaking committee appointed under paragraph (5) 
        shall report to the Secretary, by not later than June 
        1, 1996, regarding the committee's progress on 
        achieving a concensus with regard to the rulemaking 
        proceeding and whether such consensus is likely to 
        occur before one month before the target date for 
        publication of the rule. If the committee reports that 
        the committee has failed to make significant progress 
        towards such consensus or is unlikely to reach such 
        consensus by the target date, the Secretary may 
        terminate such process and provide for the publication 
        of a rule under this subsection through such other 
        methods as the Secretary may provide.
          (7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking 
        committee shall submit a report containing a proposed 
        rule by not later than one month before the target 
        publication date.
          (8) Interim, final effect.--The Secretary shall 
        publish a rule under this subsection in the Federal 
        Register by not later than the target publication date. 
        Such rule shall be effective and final immediately on 
        an interim basis, but is subject to change and revision 
        after public notice and opportunity for a period (of 
        not less than 60 days) for public comment. In 
        connection with such rule, the Secretary shall specify 
        the process for the timely review and approval of 
        applications of entities to be certified as provider-
        sponsored organizations pursuant to such rules and 
        consistent with this subsection.
          (9) Publication of rule after public comment.--The 
        Secretary shall provide for consideration of such 
        comments and republication of such rule by not later 
        than 1 year after the target publication date.
          (10) Process for approval of applications for 
        certification.--
                  (A) In general.--The Secretary shall 
                establish a process for the receipt and 
                approval of applications of entities for 
                certification as provider-sponsored 
                organizations under this part. Under such 
                process, the Secretary shall act upon a 
                complete application submitted within 60 days 
                after the date it is received.
                  (B) Circulation of proposed application 
                form.--By March 1, 1996, the Secretary, after 
                consultation with the negotiated rulemaking 
                committee, shall circulate a proposed 
                application form that could be used by entities 
                considering becoming certified as a provider-
                sponsored organization under this part.
  (d) Coordination Among Final Standards.--In establishing 
standards (other than on an interim basis) under the previous 
provisions of this section, the Secretary shall seek to provide 
for consistency (as appropriate) across the different types of 
MedicarePlus organizations, in order to promote equitable 
treatment of different types of organizations and consistent 
protection for individuals who elect products offered by the 
different types of MedicarePlus organizations.
  (e) Use of Current Standards for Interim Standards.--To the 
extent practicable and consistent with the requirements of this 
part, standards established on an interim basis to carry out 
requirements of this part may be based on currently applicable 
standards, such as the rules established under section 1876 (as 
in effect as of the date of the enactment of this section) to 
carry out analogous provisions of such section or standards 
established or developed for application in the private health 
insurance market.
  (f) Application of New Standards to Entities with a 
Contract.--In the case of a MedicarePlus organization with a 
contract in effect under this part at the time standards 
applicable to the organization under this section are changed, 
the organization may elect not to have such changes apply to 
the organization until the end of the current contract year 
(or, if there is less than 6 months remaining in the contract 
year, until 1 year after the end of the current contract year).
  (g) Relation to State Laws.--The standards established under 
this section shall supersede any State law or regulation with 
respect to MedicarePlus products which are offered by 
MedicarePlus organizations and are issued by organizations to 
which section 1851(b)(1) applies, to the extent such law or 
regulation is inconsistent with such standards.


                      medicare-plus certification


  Sec. 1857. (a) State Certification Process for State-
Regulated Organizations.--
          (1) Approval of state process.--The Secretary shall 
        approve a MedicarePlus certification and enforcement 
        program established by a State for applying the 
        standards established under section 1856 to 
        MedicarePlus organizations (other than Taft-Hartley 
        sponsors and provider-sponsored organizations) and 
        MedicarePlus products offered by such organizations if 
        the Secretary determines that the program effectively 
        provides for the application and enforcement of such 
        standards in the State with respect to such 
        organizations and products. Such program shall provide 
        for certification of compliance of MedicarePlus 
        organizations and products with the applicable 
        requirements of this part not less often than once 
        every 3 years.
          (2) Effect of certification under state process.--A 
        MedicarePlus organization and MedicarePlus product 
        offered by such an organization that is certified under 
        such program is considered to have been certified under 
        this subsection with respect to the offering of the 
        product to individuals residing in the State.
          (3) User fees.--The State may impose user fees on 
        organizations seeking certification under this 
        subsection in such amounts as the State deems 
        sufficient to finance the costs of such certification. 
        Nothing in this paragraph shall be construed as 
        restricting a State's authority to impose premium 
        taxes, other taxes, or other levies.
          (4) Review.--The Secretary periodically shall review 
        State programs approved under paragraph (1) to 
        determine if they continue to provide for certification 
        and enforcement described in such paragraph. If the 
        Secretary finds that a State program no longer so 
        provides, before making a final determination, the 
        Secretary shall provide the State an opportunity to 
        adopt such a plan of correction as would permit the 
        State program to meet the requirements of paragraph 
        (1). If the Secretary makes a final determination that 
        the State program, after such an opportunity, fails to 
        meet such requirements, the provisions of subsection 
        (b) shall apply to MedicarePlus organizations and 
        products in the State.
          (5) Effect of no state program.--Beginning on the 
        date standards are established under section 1856, in 
        the case of organizations and products in States in 
        which a certification program has not been approved and 
        in operation under paragraph (1), the Secretary shall 
        establish a process for the certification of 
        MedicarePlus organizations (other than Taft-Hartley 
        sponsors and provider-sponsored organizations) and 
        products of such organizations as meeting such 
        standards.
          (6) Publication of list of approved state programs.--
        The Secretary shall publish (and periodically update) a 
        list of those State programs which are approved for 
        purposes of this subsection.
  (b) Federal Certification Process for Taft-Hartley Sponsors 
and Provider-Sponsored Organizations.--
          (1) Establishment.--The Secretary shall establish a 
        process for the certification of Taft-Hartley sponsors 
        and provider-sponsored organizations and MedicarePlus 
        products offered by such sponsors and organizations as 
        meeting the applicable standards established under 
        section 1856.
          (2) Involvement of secretary of labor.--Such process 
        shall be established and operated in cooperation with 
        the Secretary of Labor with respect to Taft-Hartley 
        sponsors.
          (3) Use of state licensing and private accreditation 
        processes.--
                  (A) In general.--The process under this 
                subsection shall, to the maximum extent 
                practicable, provide that MedicarePlus 
                organizations and products that are licensed or 
                certified through a qualified private 
                accreditation process that the Secretary finds 
                applies standards that are no less stringent 
                than the requirements of this part are deemed 
                to meet the corresponding requirements of this 
                part for such an organization or product.
                  (B) Periodic accreditation.--The use of an 
                accreditation under subparagraph (A) shall be 
                valid only for such period as the Secretary 
                specifies.
          (4) User fees.--The Secretary may impose user fees on 
        entities seeking certification under this subsection in 
        such amounts as the Secretary deems sufficient to 
        finance the costs of such certification.
  (c) Certification of Provider-Sponsored Organizations by 
States.--
          (1) In general.--The Secretary shall establish a 
        process under which a State may propose to provide for 
        certification of entities as meeting the requirements 
        of this part to be provider-sponsored organizations.
          (2) Conditions for approval.--The Secretary may not 
        approve a State program for certification under 
        paragraph (1) unless the Secretary determines that the 
        certification program applies standards and 
        requirements that are identical to the standards and 
        requirements of this part and the applicable provisions 
        for enforcement of such standards and requirements do 
        not result in a lower level or quality of enforcement 
        than that which is otherwise applicable under this 
        title.
  (d) Notice to Enrollees in Case of Decertification.--If a 
MedicarePlus organization or product is decertified under this 
section, the organization shall notify each enrollee with the 
organization and product under this part of such 
decertification.
  (e) Qualified Associations.--In the case of MedicarePlus 
products offered by a MedicarePlus organization that is a 
qualified association (as defined in section 1854(c)(4)(C)) and 
issued by an organization to which section 1851(b)(1) applies 
or by a provider-sponsored organization (as defined in section 
1854(a)), nothing in this section shall be construed as 
limiting the authority of States to regulate such products.


               contracts with medicareplus organizations


  Sec. 1858. (a) In General.--The Secretary shall not permit 
the election under section 1805 of a MedicarePlus product 
offered by a MedicarePlus organization under this part, and no 
payment shall be made under section 1856 to an organization, 
unless the Secretary has entered into a contract under this 
section with an organization with respect to the offering of 
such product. Such a contract with an organization may cover 
more than one MedicarePlus product. Such contract shall provide 
that the organization agrees to comply with the applicable 
requirements and standards of this part and the terms and 
conditions of payment as provided for in this part.
  (b) Minimum Enrollment Requirements.--
          (1) In general.--Subject to paragraphs (1) and (2), 
        the Secretary may not enter into a contract under this 
        section with a MedicarePlus organization (other than a 
        Taft-Hartley sponsor) unless the organization has at 
        least 5,000 individuals (or 1,500 individuals in the 
        case of an organization that is a provider-sponsored 
        organization) who are receiving health benefits through 
        the organization, except that the standards under 
        section 1856 may permit the organization to have a 
        lesser number of beneficiaries (but not less than 500 
        in the case of an organization that is a provider-
        sponsored organization) if the organization primarily 
        serves individuals residing outside of urbanized areas.
          (2) Exception for high deductible/medisave product.--
        Paragraph (1) shall not apply with respect to a 
        contract that relates only to a high deductible/
        medisave product.
          (3) Allowing transition.--The Secretary may waive the 
        requirement of paragraph (1) during the first 3 
        contract years with respect to an organization.
  (c) Contract Period and Effectiveness.--
          (1) Period.--Each contract under this section shall 
        be for a term of at least one year, as determined by 
        the Secretary, and may be made automatically renewable 
        from term to term in the absence of notice by either 
        party of intention to terminate at the end of the 
        current term.
          (2) Termination authority.--In accordance with 
        procedures established under subsection (h), the 
        Secretary may at any time terminate any such contract 
        or may impose the intermediate sanctions described in 
        an applicable paragraph of subsection (g) on the 
        MedicarePlus organization if the Secretary determines 
        that the organization--
          (A) has failed substantially to carry out the 
        contract;
          (B) is carrying out the contract in a manner 
        inconsistent with the efficient and effective 
        administration of this part;
          (C) is operating in a manner that is not in the best 
        interests of the individuals covered under the 
        contract; or
          (D) no longer substantially meets the applicable 
        conditions of this part.
          (3) Effective date of contracts.--The effective date 
        of any contract executed pursuant to this section shall 
        be specified in the contract, except that in no case 
        shall a contract under this section which provides for 
        coverage under a high deductible/medisave account be 
        effective before January 1997 with respect to such 
        coverage.
          (4) Previous terminations.--The Secretary may not 
        enter into a contract with a MedicarePlus organization 
        if a previous contract with that organization under 
        this section was terminated at the request of the 
        organization within the preceding five-year period, 
        except in circumstances which warrant special 
        consideration, as determined by the Secretary.
          (5) No contracting authority.--The authority vested 
        in the Secretary by this part may be performed without 
        regard to such provisions of law or regulations 
        relating to the making, performance, amendment, or 
        modification of contracts of the United States as the 
        Secretary may determine to be inconsistent with the 
        furtherance of the purpose of this title.
  (d) Protections Against Fraud and Beneficiary Protections.--
          (1) Inspection and audit.--Each contract under this 
        section shall provide that the Secretary, or any person 
        or organization designated by the Secretary--
                  (A) shall have the right to inspect or 
                otherwise evaluate (i) the quality, 
                appropriateness, and timeliness of services 
                performed under the contract and (ii) the 
                facilities of the organization when there is 
                reasonable evidence of some need for such 
                inspection, and
                  (B) shall have the right to audit and inspect 
                any books and records of the MedicarePlus 
                organization that pertain (i) to the ability of 
                the organization to bear the risk of potential 
                financial losses, or (ii) to services performed 
                or determinations of amounts payable under the 
                contract.
          (2) Enrollee notice at time of termination.--Each 
        contract under this section shall require the 
        organization to provide (and pay for) written notice in 
        advance of the contract's termination, as well as a 
        description of alternatives for obtaining benefits 
        under this title, to each individual enrolled with the 
        organization under this part.
          (3) Disclosure.--
                  (A) In general.--Each MedicarePlus 
                organization shall, in accordance with 
                regulations of the Secretary, report to the 
                Secretary financial information which shall 
                include the following:
                          (i) Such information as the Secretary 
                        may require demonstrating that the 
                        organization has a fiscally sound 
                        operation.
                          (ii) A copy of the report, if any, 
                        filed with the Health Care Financing 
                        Administration containing the 
                        information required to be reported 
                        under section 1124 by disclosing 
                        entities.
                          (iii) A description of transactions, 
                        as specified by the Secretary, between 
                        the organization and a party in 
                        interest. Such transactions shall 
                        include--
                                  (I) any sale or exchange, or 
                                leasing of any property between 
                                the organization and a party in 
                                interest;
                                  (II) any furnishing for 
                                consideration of goods, 
                                services (including management 
                                services), or facilities 
                                between the organization and a 
                                party in interest, but not 
                                including salaries paid to 
                                employees for services provided 
                                in the normal course of their 
                                employment and health services 
                                provided to members by 
                                hospitals and other providers 
                                and by staff, medical group (or 
                                groups), individual practice 
                                association (or associations), 
                                or any combination thereof; and
                                  (III) any lending of money or 
                                other extension of credit 
                                between an organization and a 
                                party in interest.
                The Secretary may require that information 
                reported respecting an organization which 
                controls, is controlled by, or is under common 
                control with, another entity be in the form of 
                a consolidated financial statement for the 
                organization and such entity.
                  (B) Party in interest defined.--For the 
                purposes of this paragraph, the term ``party in 
                interest'' means--
                          (i) any director, officer, partner, 
                        or employee responsible for management 
                        or administration of a MedicarePlus 
                        organization, any person who is 
                        directly or indirectly the beneficial 
                        owner of more than 5 percent of the 
                        equity of the organization, any person 
                        who is the beneficial owner of a 
                        mortgage, deed of trust, note, or other 
                        interest secured by, and valuing more 
                        than 5 percent of the organization, 
                        and, in the case of a MedicarePlus 
                        organization organized as a nonprofit 
                        corporation, an incorporator or member 
                        of such corporation under applicable 
                        State corporation law;
                          (ii) any entity in which a person 
                        described in clause (i)--
                                  (I) is an officer or 
                                director;
                                  (II) is a partner (if such 
                                entity is organized as a 
                                partnership);
                                  (III) has directly or 
                                indirectly a beneficial 
                                interest of more than 5 percent 
                                of the equity; or
                                  (IV) has a mortgage, deed of 
                                trust, note, or other interest 
                                valuing more than 5 percent of 
                                the assets of such entity;
                          (iii) any person directly or 
                        indirectly controlling, controlled by, 
                        or under common control with an 
                        organization; and
                          (iv) any spouse, child, or parent of 
                        an individual described in clause (i).
                  (C) Access to information.--Each MedicarePlus 
                organization shall make the information 
                reported pursuant to subparagraph (A) available 
                to its enrollees upon reasonable request.
          (4) Loan information.--The contract shall require the 
        organization to notify the Secretary of loans and other 
        special financial arrangements which are made between 
        the organization and subcontractors, affiliates, and 
        related parties.
  (e) Additional Contract Terms.--The contract shall contain 
such other terms and conditions not inconsistent with this part 
(including requiring the organization to provide the Secretary 
with such information) as the Secretary may find necessary and 
appropriate.
  (f) Intermediate Sanctions.--
          (1) In general.--If the Secretary determines that a 
        MedicarePlus organization with a contract under this 
        section--
                  (A) fails substantially to provide medically 
                necessary items and services that are required 
                (under law or under the contract) to be 
                provided to an individual covered under the 
                contract, if the failure has adversely affected 
                (or has substantial likelihood of adversely 
                affecting) the individual;
                  (B) imposes premiums on individuals enrolled 
                under this part in excess of the premiums 
                permitted;
                  (C) acts to expel or to refuse to re-enroll 
                an individual in violation of the provisions of 
                this part;
                  (D) engages in any practice that would 
                reasonably be expected to have the effect of 
                denying or discouraging enrollment (except as 
                permitted by this part) by eligible individuals 
                with the organization whose medical condition 
                or history indicates a need for substantial 
                future medical services;
                  (E) misrepresents or falsifies information 
                that is furnished--
                          (i) to the Secretary under this part, 
                        or
                          (ii) to an individual or to any other 
                        entity under this part;
                  (F) fails to comply with the requirements of 
                section 1852(f)(3); or
                  (G) employs or contracts with any individual 
                or entity that is excluded from participation 
                under this title under section 1128 or 1128A 
                for the provision of health care, utilization 
                review, medical social work, or administrative 
                services or employs or contracts with any 
                entity for the provision (directly or 
                indirectly) through such an excluded individual 
                or entity of such services;
        the Secretary may provide, in addition to any other 
        remedies authorized by law, for any of the remedies 
        described in paragraph (2).
          (2) Remedies.--The remedies described in this 
        paragraph are--
                  (A) civil money penalties of not more than 
                $25,000 for each determination under paragraph 
                (1) or, with respect to a determination under 
                subparagraph (D) or (E)(i) of such paragraph, 
                of not more than $100,000 for each such 
                determination, plus, with respect to a 
                determination under paragraph (1)(B), double 
                the excess amount charged in violation of such 
                paragraph (and the excess amount charged shall 
                be deducted from the penalty and returned to 
                the individual concerned), and plus, with 
                respect to a determination under paragraph 
                (1)(D), $15,000 for each individual not 
                enrolled as a result of the practice involved,
                  (B) suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under paragraph (1) and until the Secretary is 
                satisfied that the basis for such determination 
                has been corrected and is not likely to recur, 
                or
                  (C) suspension of payment to the organization 
                under this part for individuals enrolled after 
                the date the Secretary notifies the 
                organization of a determination under paragraph 
                (1) and until the Secretary is satisfied that 
                the basis for such determination has been 
                corrected and is not likely to recur.
          (3) Other intermediate sanctions.--In the case of a 
        MedicarePlus organization for which the Secretary makes 
        a determination under subsection (c)(2) the basis of 
        which is not described in paragraph (1), the Secretary 
        may apply the following intermediate sanctions:
                  (A) civil money penalties of not more than 
                $25,000 for each determination under subsection 
                (c)(2) if the deficiency that is the basis of 
                the determination has directly adversely 
                affected (or has the substantial likelihood of 
                adversely affecting) an individual covered 
                under the organization's contract;
                  (B) civil money penalties of not more than 
                $10,000 for each week beginning after the 
                initiation of procedures by the Secretary under 
                subsection (h) during which the deficiency that 
                is the basis of a determination under 
                subsection (c)(2) exists; and
                  (C) suspension of enrollment of individuals 
                under this part after the date the Secretary 
                notifies the organization of a determination 
                under subsection (c)(2) and until the Secretary 
                is satisfied that the deficiency that is the 
                basis for the determination has been corrected 
                and is not likely to recur.
          (4) Procedures for imposing sanctions.--The 
        provisions of section 1128A (other than subsections (a) 
        and (b)) shall apply to a civil money penalty under 
        paragraph (1) or (2) in the same manner as they apply 
        to a civil money penalty or proceeding under section 
        1128A(a).
  (g) Procedures for Imposing Sanctions.--The Secretary may 
terminate a contract with a MedicarePlus organization under 
this section or may impose the intermediate sanctions described 
in subsection (f) on the organization in accordance with formal 
investigation and compliance procedures established by the 
Secretary under which--
          (1) the Secretary provides the organization with the 
        opportunity to develop and implement a corrective 
        action plan to correct the deficiencies that were the 
        basis of the Secretary's determination under subsection 
        (c)(2);
          (2) the Secretary shall impose more severe sanctions 
        on organizations that have a history of deficiencies or 
        that have not taken steps to correct deficiencies the 
        Secretary has brought to their attention;
          (3) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition 
        of sanctions; and
          (4) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing 
        (including the right to appeal an initial decision) 
        before imposing any sanction or terminating the 
        contract.

                  Part [C] D--Miscellaneous Provisions

              definitions of services, institutions, etc.

  Sec. 1861. For purposes of this title--

                            Spell of Illness

  (a)  * * *
          * * * * * * *
  (e) The term ``hospital'' (except for purposes of sections 
1814(d), 1814(f), and 1835(b), subsection (a)(2) of this 
section, paragraph (7) of this subsection, and subsection (i) 
of this section) means an institution which--
          (1)  * * *
          * * * * * * *
For purposes of subsection (a)(2), such term includes any 
institution which meets the requirements of paragraph (1) of 
this subsection. For purposes of sections 1814(d) and 1835(b) 
(including determination of whether an individual received 
inpatient hospital services or diagnostic services for purposes 
of such sections), section 1814(f)(2), and subsection (i) of 
this section, such term includes any institution which (i) 
meets the requirements of paragraphs (5) and (7) of this 
subsection, (ii) is not primarily engaged in providing the 
services described in section 1861(j)(1)(A) and (iii) is 
primarily engaged in providing, by or under the supervision of 
individuals referred to in paragraph (1) of section 1861(r), to 
inpatients diagnostic services and therapeutic services for 
medical diagnosis, treatment, and care of injured, disabled, or 
sick persons, or rehabilitation services for the rehabilitation 
of injured, disabled, or sick persons. For purposes of section 
1814(f)(1), such term includes an institution which (i) is a 
hospital for purposes of sections 1814(d), 1814(f)(2), and 
1835(b) and (ii) is accredited by the Joint Commission on 
Accreditation of Hospitals, or is accredited by or approved by 
a program of the country in which such institution is located 
if the Secretary finds the accreditation or comparable approval 
standards of such program to be essentially equivalent to those 
of the Joint Commission on Accreditation of Hospitals. 
Notwithstanding the preceding provisions of this subsection, 
such term shall not, except for purposes of subsection (a)(2), 
include any institution which is primarily for the care and 
treatment of mental diseases unless it is a psychiatric 
hospital (as defined in subsection (f)). The term ``hospital'' 
also includes a Christian Science sanatorium operated, or 
listed and certified, by the First Church of Christ, Scientist, 
Boston, Massachusetts, or by the Commission for Accreditation 
of Christian Science Nursing Organizations/Facilities, Inc., 
but only with respect to items and services ordinarily 
furnished by such institution to inpatients, and payment may be 
made with respect to services provided by or in such an 
institution only to such extent and under such conditions, 
limitations, and requirements (in addition to or in lieu of the 
conditions, limitations, and requirements otherwise applicable) 
as may be provided in regulations. For provisions deeming 
certain requirements of this subsection to be met in the case 
of accredited institutions, see section 1865. The term 
``hospital'' also includes a facility of fifty beds or less 
which is located in an area determined by the Secretary to meet 
the definition relating to a rural area described in 
subparagraph (A) of paragraph (5) of this subsection and which 
meets the other requirements of this subsection, except that--
          (A)  * * *
          * * * * * * *

                               Physician

  (r) The term ``physician'', when used in connection with the 
performance of any function or action, means (1) a doctor of 
medicine or osteopathy legally authorized to practice medicine 
and surgery by the State in which he performs such function or 
action (including a physician within the meaning of section 
1101(a)(7)), (2) a doctor of dental surgery or of dental 
medicine who is legally authorized to practice dentistry by the 
State in which he performs such function and who is acting 
within the scope of his license when he performs such 
functions, (3) a doctor of podiatric medicine for the purposes 
of subsections (k), (m), (p)(1), and (s) of this section and 
sections 1814(a), 1832(a)(2)(F)(ii), and 1835 but only with 
respect to functions which he is legally authorized to perform 
as such by the State in which he performs them, (4) a doctor of 
optometry, but only with respect to the provision of items or 
services described in subsection (s) which he is legally 
authorized to perform as a doctor of optometry by the State in 
which he performs them, or (5) a chiropractor who is licensed 
as such by the State (or in a State which does not license 
chiropractors as such, is legally authorized to perform the 
services of a chiropractor in the jurisdiction in which he 
performs such services), and who meets uniform minimum 
standards promulgated by the Secretary, [but only for the 
purpose of sections 1861(s)(1) and 1861(s)(2)(A) and only with 
respect to treatment by means of manual manipulation of the 
spine (to correct a subluxation demonstrated by X-ray to exist) 
which he is legally authorized to perform by the State or 
jurisdiction in which such treatment is provided.] but only 
with respect to the provision of items and services which the 
chiropractor is legally authorized to provide by the State in 
which the chiropractor provides them. For the purposes of 
section 1862(a)(4) and subject to the limitations and 
conditions provided in the previous sentence, such term 
includes a doctor of one of the arts, specified in such 
previous sentence, legally authorized to practice such art in 
the country in which the inpatient hospital services (referred 
to in such section 1862(a)(4)) are furnished.

                   Medical and Other Health Services

  (s) The term ``medical and other health services'' means any 
of the following items or services:
          (1) physicians' services;
          (2)(A)  * * *
          * * * * * * *
          (N) clinical social worker services (as defined in 
        subsection (hh)(2)); [and]
          (O) erythropoietin for dialysis patients competent to 
        use such drug without medical or other supervision with 
        respect to the administration of such drug, subject to 
        methods and standards established by the Secretary by 
        regulation for the safe and effective use of such drug, 
        and items related to the administration of such drug; 
        [and]
          (Q) an oral drug (which is approved by the Federal 
        Food and Drug Administration) prescribed for use as an 
        anticancer chemotherapeutic agent for a given 
        indication, and containing an active ingredient (or 
        ingredients), which is the same indication and active 
        ingredient (or ingredients) as a drug which the carrier 
        determines would be covered pursuant to subparagraph 
        (A) or (B) if the drug could not be self-administered; 
        and
          (R) an oral drug (which is approved by the Federal 
        Food and Drug Administration) prescribed for use as an 
        anti-emetic used as part of an anticancer 
        chemotherapeutic regimen, if the drug is prescribed or 
        dispensed--
                  (i) for use not later than 12 hours after the 
                administration of the anticancer 
                chemotherapeutic agent; and
                  (ii) as a substitute for any other anti-
                emetic therapy which would otherwise be 
                administered intravenously.
          * * * * * * *

                            Reasonable Cost

  (v)(1)(A)  * * *
          * * * * * * *
  (E) Such regulations may, in the case of skilled nursing 
facilities in any State, provide for the use of rates, 
developed by the State in which such facilities are located, 
for the payment of the cost of skilled nursing facility 
services furnished under the State's plan approved under title 
XIX (and such rates may be increased by the Secretary on a 
class or size of institution or on a geographical basis by a 
percentage factor not in excess of 10 percent to take into 
account determinable items or services or other requirements 
under this title not otherwise included in the computation of 
such State rates), if the Secretary finds that such rates are 
reasonably related to (but not necessarily limited to) analyses 
undertaken by such State of costs of care in comparable 
facilities in such State. [Notwithstanding the previous 
sentence, such regulations with respect to skilled nursing 
facilities shall take into account (in a manner consistent with 
subparagraph (A) and based on patient-days of services 
furnished) the costs (including the costs of services required 
to attain or maintain the highest practicable physical, mental, 
and psychosocial well-being of each resident eligible for 
benefits under this title) of such facilities complying with 
the requirements of subsections (b), (c), and (d) of section 
1819 (including the costs of conducting nurse aide training and 
competency evaluation programs and competency evaluation 
programs).]
          * * * * * * *
  (L)(i)  * * *
          * * * * * * *
  (iii) Not later than July 1, 1991, and annually thereafter 
(but not for cost reporting periods beginning on or after July 
1, 1994, and before July 1, 1996), the Secretary shall 
establish limits under this subparagraph for cost reporting 
periods beginning on or after such date by utilizing the area 
wage index applicable under section 1886(d)(3)(E) and 
determined using the survey of the most recent available wages 
and wage-related costs of hospitals located in the geographic 
area in which the home health agency is located (determined 
without regard to whether such hospitals have been reclassified 
to a new geographic area pursuant to section 1886(d)(8)(B), a 
decision of the Medicare Geographic Classification Review Board 
under section 1886(d)(10), or a decision of the Secretary). In 
establishing limits under this subparagraph, the Secretary may 
not take into account any changes in the costs of the provision 
of services furnished by home health agencies with respect to 
cost reporting periods which began on or after July 1, 1994, 
and before July 1, 1996.
  (iv) This subparagraph shall apply only to services furnished 
by home health agencies during cost reporting periods ending on 
or before September 30, 1996.
          * * * * * * *
  (S)(i) Such regulations shall not include provision for 
specific recognition of any return on equity capital with 
respect to hospital outpatient departments.
  (ii)(I) Such regulations shall provide that, in determining 
the amount of the payments that may be made under this title 
with respect to all the capital-related costs of outpatient 
hospital services, the Secretary shall reduce the amounts of 
such payments otherwise established under this title by 15 
percent for payments attributable to portions of cost reporting 
periods occurring during fiscal year 1990, by 15 percent for 
payments attributable to portions of cost reporting periods 
occurring during fiscal year 1991, and by 10 percent for 
payments attributable to portions of cost reporting periods 
occurring during fiscal years 1992 [through 1998] through 2002.
  (II) The Secretary shall reduce the reasonable cost of 
outpatient hospital services (other than the capital-related 
costs of such services) otherwise determined pursuant to 
section 1833(a)(2)(B)(i)(I) by 5.8 percent for payments 
attributable to portions of cost reporting periods occurring 
during fiscal years 1991 [through 1998] through 2002.
          * * * * * * *
  (T)(i) In determining such reasonable costs for hospitals, 
the amount of bad debts otherwise treated as allowable costs 
which are attributable to the deductibles and coinsurance 
amounts under this title shall be reduced by--
          (I) 75 percent for cost reporting periods beginning 
        during fiscal year 1996,
          (II) 60 percent for cost reporting periods beginning 
        during fiscal year 1997, and
          (III) 50 percent for subsequent cost reporting 
        periods.
  (ii) Clause (i) shall not apply with respect to bad debt of a 
hospital described in section 1886(d)(1)(B)(iv) if the debt is 
attributable to uncollectable deductible and coinsurance 
payments owed by individuals enrolled in a State plan under 
title XIX or under the MediGrant program under title XXI.
  (U) Such regulations shall provide that, in determining the 
amount of the payments that may be made under this title with 
respect to all the capital-related costs of skilled nursing 
facilities, the Secretary shall reduce the amounts of such 
payments otherwise established under this title by 15 percent 
for payments attributable to portions of cost reporting periods 
occurring during fiscal years 1996 through 2002.
  (V) In the case of an item or service furnished by a skilled 
nursing facility (or by others under arrangement with them made 
by a skilled nursing facility) for which payment is made under 
part B in an amount determined in accordance with section 
1833(a)(2)(B), the Secretary shall reduce the reasonable cost 
for such item or service otherwise determined under clause 
(i)(I) of such section by 5.8 percent for payments attributable 
to portions of cost reporting periods occurring during fiscal 
years 1996 through 2002.
          * * * * * * *

     Extended Care in Christian Science Skilled Nursing Facilities

  (y)(1) The term ``skilled nursing facility'' also includes a 
Christian Science sanatorium operated, or listed and certified, 
by the First Church of Christ, Scientist, Boston, 
Massachusetts, or by the Commission for Accreditation of 
Christian Science Nursing Organizations/Facilities, Inc., but 
only (except for purposes of subsection (a)(2)) with respect to 
items and services ordinarily furnished by such an institution 
to inpatients, and payment may be made with respect to services 
provided by or in such an institution only to such extent and 
under such conditions, limitations, and requirements (in 
addition to or in lieu of the conditions, limitations, and 
requirements otherwise applicable) as may be provided in 
regulations.
          * * * * * * *

   Rural Emergency Access Care Hospital; Rural Emergency Access Care 
                           Hospital Services

  (oo)(1) The term ``rural emergency access care hospital'' 
means, for a fiscal year, a facility with respect to which the 
Secretary finds the following:
          (A) The facility is located in a rural area (as 
        defined in section 1886(d)(2)(D)).
          (B) The facility was a hospital under this title at 
        any time during the 5-year period that ends on the date 
        of the enactment of this subsection.
          (C) The facility is in danger of closing due to low 
        inpatient utilization rates and operating losses, and 
        the closure of the facility would limit the access to 
        emergency services of individuals residing in the 
        facility's service area.
          (D) The facility has entered into (or plans to enter 
        into) an agreement with a hospital with a participation 
        agreement in effect under section 1866(a), and under 
        such agreement the hospital shall accept patients 
        transferred to the hospital from the facility and 
        receive data from and transmit data to the facility.
          (E) There is a practitioner who is qualified to 
        provide advanced cardiac life support services (as 
        determined by the State in which the facility is 
        located) on-site at the facility on a 24-hour basis.
          (F) A physician is available on-call to provide 
        emergency medical services on a 24-hour basis.
          (G) The facility meets such staffing requirements as 
        would apply under section 1861(e) to a hospital located 
        in a rural area, except that--
                  (i) the facility need not meet hospital 
                standards relating to the number of hours 
                during a day, or days during a week, in which 
                the facility must be open, except insofar as 
                the facility is required to provide emergency 
                care on a 24-hour basis under subparagraphs (E) 
                and (F); and
                  (ii) the facility may provide any services 
                otherwise required to be provided by a full-
                time, on-site dietitian, pharmacist, laboratory 
                technician, medical technologist, or 
                radiological technologist on a part-time, off-
                site basis.
          (H) The facility meets the requirements applicable to 
        clinics and facilities under subparagraphs (C) through 
        (J) of paragraph (2) of section 1861(aa) and of clauses 
        (ii) and (iv) of the second sentence of such paragraph 
        (or, in the case of the requirements of subparagraph 
        (E), (F), or (J) of such paragraph, would meet the 
        requirements if any reference in such subparagraph to a 
        ``nurse practitioner'' or to ``nurse practitioners'' 
        were deemed to be a reference to a ``nurse practitioner 
        or nurse'' or to ``nurse practitioners or nurses''); 
        except that in determining whether a facility meets the 
        requirements of this subparagraph, subparagraphs (E) 
        and (F) of that paragraph shall be applied as if any 
        reference to a ``physician'' is a reference to a 
        physician as defined in section 1861(r)(1).
  (2) The term ``rural emergency access care hospital 
services'' means the following services provided by a rural 
emergency access care hospital and furnished to an individual 
over a continuous period not to exceed 24 hours (except that 
such services may be furnished over a longer period in the case 
of an individual who is unable to leave the hospital because of 
inclement weather):
          (A) An appropriate medical screening examination (as 
        described in section 1867(a)).
          (B) Necessary stabilizing examination and treatment 
        services for an emergency medical condition and labor 
        (as described in section 1867(b)).

        exclusions from coverage and medicare as secondary payer

  Sec. 1862. (a) Notwithstanding any other provision of this 
title, no payment may be made under part A or part B for any 
expenses incurred for items or services--
          (1)(A)  * * *
          * * * * * * *
          (D) in the case of clinical care items and services 
        provided with the concurrence of the Secretary and with 
        respect to research and experimentation conducted by, 
        or under contract with, the [Prospective Payment 
        Assessment Commission] Medicare Payment Review 
        Commission or the Secretary, which are not reasonable 
        and necessary to carry out the purposes of section 
        1886(e)(6),
          * * * * * * *
          (14) which are other than physicians' services (as 
        defined in regulations promulgated specifically for 
        purposes of this paragraph), services described by 
        section 1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii), 
        certified nurse-midwife services, qualified 
        psychologist services, and services of a certified 
        registered nurse anesthetist, and which are furnished 
        to an individual who is a patient of a hospital or 
        rural primary care hospital by an entity other than the 
        hospital or rural primary care hospital, unless the 
        services are furnished under arrangements (as defined 
        in section 1861(w)(1)) with the entity made by the 
        hospital or rural primary care hospital; [or]
          (15)(A) which are for services of an assistant at 
        surgery in a cataract operation (including subsequent 
        insertion of an intraocular lens) unless, before the 
        surgery is performed, the appropriate utilization and 
        quality control peer review organization (under part B 
        of title XI) or a carrier under section 1842 has 
        approved of the use of such an assistant in the 
        surgical procedure based on the existence of a 
        complicating medical condition, orrespect to deeming 
        approval.
          (B) which are for services of an assistant at surgery 
        to which section 1848(i)(2)(B) applies[.];
          (16) where such expenses are for covered non-routine 
        services (as defined in section 1888A(a)(1)) (other 
        than a portable X-ray or portable electrocardiogram 
        treated as a physician's service for purposes of 
        section 1848(j)(3)) furnished to an individual who is a 
        resident of a skilled nursing facility and for which 
        the claim for payment under this title is not submitted 
        by the facility;
          (17) where such expenses are for home health services 
        furnished to an individual who is under a plan of care 
        of the home health agency if the claim for payment for 
        such services is not submitted by the agency; or
          (18) where such expenses are for items or services, 
        or to assist in the purchase, in whole or in part, of 
        health benefit coverage that includes items or 
        services, for the purpose of causing, or assisting in 
        causing, the death, suicide, euthanasia, or mercy 
        killing of a person.
Paragraph (7) shall not apply to Federally qualified health 
center services described in section 1861(aa)(3)(B).
  (b) Medicare as Secondary Payer.--
          (1) Requirements of group health plans.--
                  (A)  * * *
                  (B) Disabled individuals in large group 
                health plans.--
                          (i) In general.--A large group health 
                        plan (as defined in [clause (iv)] 
                        clause (iii)) may not take into account 
                        that an individual (or a member of the 
                        individual's family) who is covered 
                        under the plan by virtue of the 
                        individual's current employment status 
                        with an employer is entitled to 
                        benefits under this title under section 
                        226(b).
          * * * * * * *
                          [(iii) Sunset.--Clause (i) shall only 
                        apply to items and services furnished 
                        on or after January 1, 1987, and before 
                        October 1, 1998.
                          [(iv)] (iii) Large Group Health Plan 
                        Defined.--In this subparagraph, the 
                        term ``large group health plan'' has 
                        the meaning given such term in section 
                        5000(b)(2) of the Internal Revenue Code 
                        of 1986, without regard to section 
                        5000(d) of such Code.
                  (C) Individuals with end stage renal 
                disease.--A group health plan (as defined in 
                subparagraph (A)(v))--
                          (i) may not take into account that an 
                        individual is entitled to or eligible 
                        for benefits under this title under 
                        section 226A during the [12-month] 24-
                        month period which begins with the 
                        first month in which the individual 
                        becomes entitled to benefits under part 
                        A under the provisions of section 226A, 
                        or, if earlier, the first month in 
                        which the individual would have been 
                        entitled to benefits under such part 
                        under the provisions of section 226A if 
                        the individual had filed an application 
                        for such benefits; and
                          (ii) may not differentiate in the 
                        benefits it provides between 
                        individuals having end stage renal 
                        disease and other individuals covered 
                        by such plan on the basis of the 
                        existence of end stage renal disease, 
                        the need for renal dialysis, or in any 
                        other manner;
                except that clause (ii) shall not prohibit a 
                plan from paying benefits secondary to this 
                title when an individual is entitled to or 
                eligible for benefits under this title under 
                section 226A after the end of the [12-month] 
                24-month period described in clause (i). 
                [Effective for items and services furnished on 
                or after February 1, 1991, and before October 
                1, 1998 (with respect to periods beginning on 
                or after February 1, 1990), this subparagraph 
                shall be applied by substituting ``18- month'' 
                for ``12-month'' each place it appears.]
          * * * * * * *
          (2) Medicare secondary payer.--
                  (A)  * * *
                  (B) Conditional payment.--
                          (i)  * * *
                          (ii) Action by united states.--In 
                        order to recover payment under this 
                        title for such an item or service, the 
                        United States may bring an action 
                        against any entity which is required or 
                        responsible [under this subsection to 
                        pay] (directly, as a third-party 
                        administrator, or otherwise) to make 
                        payment with respect to such item or 
                        service (or any portion thereof) under 
                        a primary plan (and may, in accordance 
                        with paragraph (3)(A) collect double 
                        damages against that entity), or 
                        against any other entity (including any 
                        physician or provider) that has 
                        received payment from that entity with 
                        respect to the item or service, and may 
                        join or intervene in any action related 
                        to the events that gave rise to the 
                        need for the item or service. The 
                        United States may not recover from a 
                        third-party administrator under this 
                        clause in cases where the third-party 
                        administrator would not be able to 
                        recover the amount at issue from the 
                        employer or group health plan for whom 
                        it provides administrative services due 
                        to the insolvency or bankruptcy of the 
                        employer or plan.
          * * * * * * *
                          (v) Claims-filing period.--
                        Notwithstanding any other time limits 
                        that may exist for filing a claim under 
                        an employer group health plan, the 
                        United States may seek to recover 
                        conditional payments in accordance with 
                        this subparagraph where the request for 
                        payment is submitted to the entity 
                        required or responsible under this 
                        subsection to pay with respect to the 
                        item or service (or any portion 
                        thereof) under a primary plan within 
                        the 3-year period beginning on the date 
                        on which the item or service was 
                        furnished.
          * * * * * * *
          (5) Identification of secondary payer situations.--
                  (A)  * * *
                  (B) Disclosure to fiscal intermediaries and 
                carriers.--In addition to any other information 
                provided under this title to fiscal 
                intermediaries and carriers, the Administrator 
                shall disclose to such intermediaries and 
                carriers (or to such a single intermediary or 
                carrier as the Secretary may designate) the 
                information received under[--
                          [(i) subparagraph (A), and
                          [(ii) section 1144,
                [for purposes of carrying out this subsection.] 
                subparagraph (A) for purposes of carrying out 
                this subsection.
                  (C) Contacting employers.--
                          (i) In general.--With respect to each 
                        individual (in this subparagraph 
                        referred to as an ``employee'') who was 
                        furnished a written statement under 
                        section 6051 of the Internal Revenue 
                        Code of 1986 by a qualified employer 
                        (as defined in section 
                        6103(l)(12)(E)(iii) of such Code), as 
                        disclosed under [subparagraph (B)(i)] 
                        subparagraph (B), the appropriate 
                        fiscal intermediary or carrier shall 
                        contact the employer in order to 
                        determine during what period the 
                        employee or employee's spouse may be 
                        (or have been) covered under a group 
                        health plan of the employer and the 
                        nature of the coverage that is or was 
                        provided under the plan (including the 
                        name, address, and identifying number 
                        of the plan).
          * * * * * * *
                          [(iii) Sunset on requirement.--Clause 
                        (ii) shall not apply to inquiries made 
                        after September 30, 1998.]
          * * * * * * *
  (i) In order to supplement the activities of the [Prospective 
Payment Assessment Commission] Medicare Payment Review 
Commission under section 1886(e) in assessing the safety, 
efficacy, and cost-effectiveness of new and existing medical 
procedures, the Secretary may carry out, or award grants or 
contracts for, original research and experimentation of the 
type described in clause (ii) of section 1886(e)(6)(E) with 
respect to such a procedure if the Secretary finds that--
          (1)  * * *
          * * * * * * *
  (j)(1) Notwithstanding any other provision of this title, no 
payment may be made under part B for physicians' services 
furnished by a chiropractor (or services and supplies furnished 
as an incident to such services) unless such services are 
described in paragraphs (1) or (2)(A) of section 1861(s) and 
are for treatment by means of manual manipulation of the spine 
(to correct a subluxation demonstrated by X-ray to exist).
  (2) Nothing in this title shall exclude coverage of X-ray and 
other tests described in section 1861(s)(3) that are ordered 
by, or upon referral from, a chiropractor if such tests are 
otherwise covered under this title.
          * * * * * * *

use of state agencies to determine compliance by providers of services 
                    with conditions of participation

  Sec. 1864. (a) * * *
          * * * * * * *
  [(d) The Secretary may not enter an agreement under this 
section with a State with respect to determining whether an 
institution therein is a skilled nursing facility unless the 
State meets the requirements specified in section 1819(e) and 
section 1819(g) and the establishment of remedies under 
sections 1819(h)(2)(B) and 1819(h)(2)(C) (relating to 
establishment and application of remedies).]
          * * * * * * *

                 agreements with providers of services

  Sec. 1866. (a)(1) Any provider of services (except a fund 
designated for purposes of section 1814(g) and section 1835(e)) 
shall be qualified to participate under this title and shall be 
eligible for payments under this title if it files with the 
Secretary an agreement--
          (A) * * *
          * * * * * * *
          (O) in the case of hospitals and skilled nursing 
        facilities, to accept as payment in full for inpatient 
        hospital and extended care services that are covered 
        under this title and are furnished to any individual 
        enrolled with an eligible organization (i) with a risk-
        sharing contract under section 1876, under section 
        1876(i)(2)(A) (as in effect before February 1, 1985), 
        under section 402(a) of the Social Security Amendments 
        of 1967, or under section 222(a) of the Social Security 
        Amendments of 1972, and (ii) which does not have a 
        contract establishing payment amounts for services 
        furnished to members of the organization the amounts 
        (in the case of hospitals) or limits (in the case of 
        skilled nursing facilities) that would be made as a 
        payment in full under this title if the individuals 
        were not so enrolled and in the case of hospitals to 
        accept as payment in full for inpatient hospital 
        services that are emergency services (as defined in 
        section 1853(b)(4)) that are covered under this title 
        and are furnished to any individual enrolled under part 
        C with a MedicarePlus organization which does not have 
        a contract establishing payment amounts for services 
        furnished to members of the organization the amounts 
        that would be made as a payment in full under this 
        title if the individuals were not so enrolled;
          * * * * * * *
  (f)(1) For purposes of subsection (a)(1)(Q) and sections 
[1819(c)(2)(E),] 1833(s), 1853(g), 1876(c)(8), and 1891(a)(6), 
the requirement of this subsection is that a provider of 
services, MedicarePlus organization, or prepaid or eligible 
organization (as the case may be) maintain written policies and 
procedures with respect to all adult individuals receiving 
medical care by or through the provider or organization--
          (A) * * *
          * * * * * * *
  (4) Nothing in this subsection shall be construed to require 
the provision of information regarding assisted suicide, 
euthanasia, or mercy killing.
          * * * * * * *

examination and treatment for emergency medical conditions and women in 
                                 labor

  Sec. 1867. (a) * * *
          * * * * * * *
  (e) Definitions.--In this section:
          (1) * * *
          * * * * * * *
          (5) The term ``hospital'' includes a rural primary 
        care hospital (as defined in section [1861(mm)(1))] 
        1861(mm)(1)) and a rural emergency access care hospital 
        (as defined in section 1861(oo)(1)).
          * * * * * * *

 payments to health maintenance organizations and competitive medical 
                                 plans

  Sec. 1876. (a) * * *
          * * * * * * *
  (c)(1) * * *
          * * * * * * *
  (3)(A)(i) Each eligible organization must have an open 
enrollment period, for the enrollment of individuals under this 
section, of at least 30 days duration every year and including 
the period or periods specified under clause (ii), and must 
provide that at any time during which enrollments are accepted, 
the organization will accept up to the limits of its capacity 
(as determined by the Secretary) and without restrictions, 
except as may be authorized in regulations, individuals who are 
eligible to enroll under subsection (d) in the order in which 
they apply for enrollment, unless to do so [would result in 
failure to meet the requirements of subsection (f) or] would 
result in the enrollment of enrollees substantially 
nonrepresentative, as determined in accordance with regulations 
of the Secretary, of the population in the geographic area 
served by the organization.
          * * * * * * *
  [(f)(1) Each eligible organization with which the Secretary 
enters into a contract under this section shall have, for the 
duration of such contract, an enrolled membership at least one-
half of which consists of individuals who are not entitled to 
benefits under this title or under a State plan approved under 
title XIX.
  [(2) The Secretary may modify or waive the requirement 
imposed by paragraph (1) only--
          [(A) to the extent that more than 50 percent of the 
        population of the area served by the organization 
        consists of individuals who are entitled to benefits 
        under this title or under a State plan approved under 
        title XIX, or
          [(B) in the case of an eligible organization that is 
        owned and operated by a governmental entity, only with 
        respect to a period of three years beginning on the 
        date the organization first enters into a contract 
        under this section, and only if the organization has 
        taken and is making reasonable efforts to enroll 
        individuals who are not entitled to benefits under this 
        title or under a State plan approved under title XIX.
  [(3) If the Secretary determines that an eligible 
organization has failed to comply with the requirements of this 
subsection, the Secretary may provide for the suspension of 
enrollment of individuals under this section or of payment to 
the organization under this section for individuals newly 
enrolled with the organization, after the date the Secretary 
notifies the organization of such noncompliance.]
          * * * * * * *
  (i)(1) Each contract under this section shall be for a term 
of at least one year, as determined by the Secretary, and may 
be made automatically renewable from term to term in the 
absence of notice by either party of intention to terminate at 
the end of the current term; except that [the Secretary may 
terminate any such contract at any time (after such reasonable 
notice and opportunity for hearing to the eligible organization 
involved as he may provide in regulations), if he finds that 
the organization--
          [(A) has failed substantially to carry out the 
        contract,
          [(B) is carrying out the contract in a manner 
        inconsistent with the efficient and effective 
        administration of this section, or
          [(C) no longer substantially meets the applicable 
        conditions of subsections (b), (c), (e), and (f).] in 
        accordance with procedures established under paragraph 
        (9), the Secretary may at any time terminate any such 
        contract or may impose the intermediate sanctions 
        described in paragraph (6)(B) or (6)(C) (whichever is 
        applicable) on the eligible organization if the 
        Secretary determines that the organization--
          (A) has failed substantially to carry out the 
        contract;
          (B) is carrying out the contract in a manner 
        inconsistent with the efficient and effective 
        administration of this section;
          (C) is operating in a manner that is not in the best 
        interests of the individuals covered under the 
        contract; or
          (D) no longer substantially meets the applicable 
        conditions of subsections (b), (c), and (e).

          * * * * * * *

  (6)(A) * * *
  (B) The remedies described in this subparagraph are--
          (i) * * *

          * * * * * * *

[The provisions of section 1128A (other than subsections (a) 
and (b)) shall apply to a civil money penalty under clause (i) 
in the same manner as they apply to a civil money penalty or 
proceeding under section 1128A(a).]
  (C) In the case of an eligible organization for which the 
Secretary makes a determination under paragraph (1) the basis 
of which is not described in subparagraph (A), the Secretary 
may apply the following intermediate sanctions:
          (i) civil money penalties of not more than $25,000 
        for each determination under paragraph (1) if the 
        deficiency that is the basis of the determination has 
        directly adversely affected (or has the substantial 
        likelihood of adversely affecting) an individual 
        covered under the organization's contract;
          (ii) civil money penalties of not more than $10,000 
        for each week beginning after the initiation of 
        procedures by the Secretary under paragraph (9) during 
        which the deficiency that is the basis of a 
        determination under paragraph (1) exists; and
          (iii) suspension of enrollment of individuals under 
        this section after the date the Secretary notifies the 
        organization of a determination under paragraph (1) and 
        until the Secretary is satisfied that the deficiency 
        that is the basis for the determination has been 
        corrected and is not likely to recur.
  (D) The provisions of section 1128A (other than subsections 
(a) and (b)) shall apply to a civil money penalty under 
subparagraph (A) or (B) in the same manner as they apply to a 
civil money penalty or proceeding under section 1128A(a).
          * * * * * * *
  (9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate 
sanctions described in paragraph (6) on the organization in 
accordance with formal investigation and compliance procedures 
established by the Secretary under which--
          (A) the Secretary provides the organization with the 
        opportunity to develop and implement a corrective 
        action plan to correct the deficiencies that were the 
        basis of the Secretary's determination under paragraph 
        (1);
          (B) the Secretary shall impose more severe sanctions 
        on organizations that have a history of deficiencies or 
        that have not taken steps to correct deficiencies the 
        Secretary has brought to their attention;
          (C) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition 
        of sanctions; and
          (D) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing 
        (including the right to appeal an initial decision) 
        before imposing any sanction or terminating the 
        contract.
          * * * * * * *

               LIMITATION ON CERTAIN PHYSICIAN REFERRALS

  Sec. 1877. (a) Prohibition of Certain Referrals.--
          (1) * * *
          (2) Financial relationship specified.--For purposes 
        of this section, a financial relationship of a 
        physician (or an immediate family member of such 
        physician) with an entity specified in this paragraph 
        [is--
                  [(A) except as provided in subsections (c) 
                and (d), an ownership or investment interest in 
                the entity, or
                  [(B) except as provided in subsection (e), a 
                compensation arrangement (as defined in 
                subsection (h)(1)) between the physician (or an 
                immediate family member of such physician) and 
                the entity.
        An ownership or investment interest described in 
        subparagraph (A) may be through equity,] is (except as 
        provided in subsection (c)) an ownership or investment 
        interest in the entity through equity, debt, or other 
        means and includes an interest in an entity that holds 
        an ownership or investment interest in any entity 
        providing the designated health service.
  (b) General Exceptions [to Both Ownership and Compensation 
Arrangement Prohibitions] Where Financial Relationship 
Exists.--Subsection (a)(1) shall not apply in the following 
cases:
          (1) * * *
          (2) [In-office ancillary services] Ancillary services 
        furnished personally or through group practice.--In the 
        case of [services (other than durable medical equipment 
        (excluding infusion pumps) and parenteral and enteral 
        nutrients, equipment, and supplies)--] services--
                  [(A) that are furnished--
                          [(i) personally by the referring 
                        physician, personally by a physician 
                        who is a member of the same group 
                        practice as the referring physician, or 
                        personally by individuals who are 
                        directly supervised by the physician or 
                        by another physician in the group 
                        practice, and
                          [(ii)(I) in a building in which the 
                        referring physician (or another 
                        physician who is a member of the same 
                        group practice) furnishes physicians' 
                        services unrelated to the furnishing of 
                        designated health services, or
                          [(II) in the case of a referring 
                        physician who is a member of a group 
                        practice, in another building which is 
                        used by the group practice--
                                  [(aa) for the provision of 
                                some or all of the group's 
                                clinical laboratory services, 
                                or
                                  [(bb) for the centralized 
                                provision of the group's 
                                designated health services 
                                (other than clinical laboratory 
                                services),
                        unless the Secretary determines other 
                        terms and conditions under which the 
                        provision of such services does not 
                        present a risk of program or patient 
                        abuse, and]
                  (A) that are furnished personally by the 
                referring physician, personally by a physician 
                who is a member of the same group practice as 
                the referring physician, or personally by 
                individuals who are under the general 
                supervision of the physician or of another 
                physician in the group practice, and
                  (B) that are billed by the physician 
                performing or supervising the services, by a 
                group practice of which such physician is a 
                member under a billing number assigned to the 
                group practice, or by an entity that is wholly 
                owned by such [physician or such group 
                practice] physician, such group practice, or 
                the physician owners of such group practice,
        if the ownership or investment interest in such 
        services meets such other requirements as the Secretary 
        may impose by regulation as needed to protect against 
        program or patient abuse.
          (3) Prepaid plans managed care arrangements.--In the 
        case of services furnished by an [organization--] 
        organization, directly or through contractual 
        arrangements with other entities, to individuals 
        enrolled with the organization--
                  (A) with a contract under section 1876 or 
                part C to an individual enrolled with the 
                organization,
                  (B) described in section 1833(a)(1)(A) to an 
                individual enrolled with the organization,
                  (C) receiving payments on a prepaid basis, 
                under a demonstration project under section 
                402(a) of the Social Security Amendments of 
                1967 or under section 222(a) of the Social 
                Security Amendments of 1972, to an individual 
                enrolled with the organization, [or]
                  (D) that is a qualified health maintenance 
                organization (within the meaning of section 
                1310(d) of the Public Health Service Act) to an 
                individual enrolled with the organization[.],
                  (E) with a contract with a State to provide 
                services under the State plan under title XIX 
                (in accordance with section 1903(m)) or a State 
                MediGrant plan under title XXI; or
                  (F) which is a MedicarePlus organization 
                under part C or which provides or arranges for 
                the provision of health care items or services 
                pursuant to a written agreement between the 
                organization and an individual or entity if the 
                written agreement places the individual or 
                entity at substantial financial risk for the 
                cost or utilization of the items or services 
                which the individual or entity is obligated to 
                provide, whether through a withhold, 
                capitation, incentive pool, per diem payment, 
                or any other similar risk arrangement which 
                places the individual or entity at substantial 
                financial risk.
          (4) Shared facility services.--In the case of a 
        designated health service consisting of a shared 
        facility service of a shared facility--
                  (A) that is furnished--
                          (i) personally by the referring 
                        physician who is a shared facility 
                        physician or personally by an 
                        individual directly employed or under 
                        the general supervision of such a 
                        physician,
                          (ii) by a shared facility in a 
                        building in which the referring 
                        physician furnishes substantially all 
                        of the services of the physician that 
                        are unrelated to the furnishing of 
                        shared facility services, and
                          (iii) to a patient of a shared 
                        facility physician; and
                  (B) that is billed by the referring physician 
                or a group practice of which the physician is a 
                member.
          (5) No alternative providers in area.--In the case of 
        a designated health service furnished in any area with 
        respect to which the Secretary determines that 
        individuals residing in the area do not have reasonable 
        access to such a designated health service for which 
        subsection (a)(1) does not apply.
          (6) Services furnished in ambulatory surgical 
        centers.--In the case of a designated health service 
        furnished in an ambulatory surgical center described in 
        section 1832(a)(2)(F)(i).
          (7) Services furnished in renal dialysis 
        facilities.--In the case of a designated health service 
        furnished in a renal dialysis facility under section 
        1881.
          (8) Services furnished by a hospice program.--In the 
        case of a designated health service furnished by a 
        hospice program under section 1861(dd)(2).
          (9) Services furnished in a comprehensive outpatient 
        rehabilitation facility.--In the case of a designated 
        health service furnished in a comprehensive outpatient 
        rehabilitation facility (as defined in section 
        1861(cc)(2)).
          [(1)] (10) Hospitals in puerto rico.--In the case of 
        designated health services provided by a hospital 
        located in Puerto Rico.
          [(2)] (11) Rural provider.--In the case of designated 
        health services furnished in a rural area (as defined 
        in section 1886(d)(2)(D)) by an entity, if 
        [substantially all] not less than 75 percent of the 
        designated health services furnished by such entity are 
        furnished to individuals residing in such a rural area.
          [(3)] (12) Hospital ownership.--In the case of 
        designated health services provided by a hospital 
        (other than a hospital described in [paragraph (1)] 
        paragraph (4)) if--
                  (A) the referring physician is authorized to 
                perform services at the hospital, and
                  (B) the ownership or investment interest is 
                in the hospital itself (and not merely in a 
                subdivision of the hospital).
          [(4)] (13) Other permissible exceptions.--In the case 
        of any other financial relationship which the Secretary 
        determines, and specifies in regulations, does not pose 
        a risk of program or patient abuse.
  (c) [General Exception Related Only to Ownership or 
Investment Prohibition for Ownership in Publicly Traded 
Securities and Mutual Funds] Exception for Ownership or 
Investment Interest in Publicly Traded Securities and Mutual 
Funds.--Ownership of the following shall not be considered to 
be an ownership or investment interest described in [subsection 
(a)(2)(A)] subsection (a)(2):
          (1) * * *
          * * * * * * *
  [(d) Additional Exceptions Related Only to Ownership or 
Investment Prohibition.--The following, if not otherwise 
excepted under subsection (b), shall not be considered to be an 
ownership or investment interest described in subsection 
(a)(2)(A):
          [(1) Hospitals in puerto rico.--In the case of 
        designated health services provided by a hospital 
        located in Puerto Rico.
          [(2) Rural provider.--In the case of designated 
        health services furnished in a rural area (as defined 
        in section 1886(d)(2)(D)) by an entity, if 
        substantially all of the designated health services 
        furnished by such entity are furnished to individuals 
        residing in such a rural area.
          [(3) Hospital ownership.--In the case of designated 
        health services provided by a hospital (other than a 
        hospital described in paragraph (1)) if--
                  [(A) the referring physician is authorized to 
                perform services at the hospital, and
                  [(B) the ownership or investment interest is 
                in the hospital itself (and not merely in a 
                subdivision of the hospital).
  [(e) Exceptions Relating to Other Compensation 
Arrangements.--The following shall not be considered to be a 
compensation arrangement described in subsection (a)(2)(B):
          [(1) Rental of office space; rental of equipment.--
                  [(A) Office Space.--Payments made by a lessee 
                to a lessor for the use of premises if--
                          [(i) the lease is set out in writing, 
                        signed by the parties, and specifies 
                        the premises covered by the lease,
                          [(ii) the space rented or leased does 
                        not exceed that which is reasonable and 
                        necessary for the legitimate business 
                        purposes of the lease or rental and is 
                        used exclusively by the lessee when 
                        being used by the lessee, except that 
                        the lessee may make payments for the 
                        use of space consisting of common areas 
                        if such payments do not exceed the 
                        lessee's pro rata share of expenses for 
                        such space based upon the ratio of the 
                        space used exclusively by the lessee to 
                        the total amount of space (other than 
                        common areas) occupied by all persons 
                        using such common areas,
                          [(iii) the lease provides for a term 
                        of rental or lease for at least 1 year,
                          [(iv) the rental charges over the 
                        term of the lease are set in advance, 
                        are consistent with fair market value, 
                        and are not determined in a manner that 
                        takes into account the volume or value 
                        of any referrals or other business 
                        generated between the parties,
                          [(v) the lease would be commercially 
                        reasonable even if no referrals were 
                        made between the parties, and
                          [(vi) the lease meets such other 
                        requirements as the Secretary may 
                        impose by regulation as needed to 
                        protect against program or patient 
                        abuse.
                  [(B) Equipment.--Payments made by a lessee of 
                equipment to the lessor of the equipment for 
                the use of the equipment if--
                          [(i) the lease is set out in writing, 
                        signed by the parties, and specifies 
                        the equipment covered by the lease,
                          [(ii) the equipment rented or leased 
                        does not exceed that which is 
                        reasonable and necessary for the 
                        legitimate business purposes of the 
                        lease or rental and is used exclusively 
                        by the lessee when being used by the 
                        lessee,
                          [(iii) the lease provides for a term 
                        of rental or lease of at least 1 year,
                          [(iv) the rental charges over the 
                        term of the lease are set in advance, 
                        are consistent with fair market value, 
                        and are not determined in a manner that 
                        takes into account the volume or value 
                        of any referrals or other business 
                        generated between the parties,
                          [(v) the lease would be commercially 
                        reasonable even if no referrals were 
                        made between the parties, and
                          [(vi) the lease meets such other 
                        requirements as the Secretary may 
                        impose by regulation as needed to 
                        protect against program or patient 
                        abuse.
          [(2) Bona fide employment relationships.--Any amount 
        paid by an employer to a physician (or an immediate 
        family member of such physician) who has a bona fide 
        employment relationship with the employer for the 
        provision of services if--
                  [(A) the employment is for identifiable 
                services,
                  [(B) the amount of the remuneration under the 
                employment--
                          [(i) is consistent with the fair 
                        market value of the services, and
                          [(ii) is not determined in a manner 
                        that takes into account (directly or 
                        indirectly) the volume or value of any 
                        referrals by the referring physician,
                  [(C) the remuneration is provided pursuant to 
                an agreement which would be commercially 
                reasonable even if no referrals were made to 
                the employer, and
                  [(D) the employment meets such other 
                requirements as the Secretary may impose by 
                regulation as needed to protect against program 
                or patient abuse.
        Subparagraph (B)(ii) shall not prohibit the payment of 
        remuneration in the form of a productivity bonus based 
        on services performed personally by the physician (or 
        an immediate family member of such physician).
          [(3) Personal service arrangements.--
                  [(A) In general.--Remuneration from an entity 
                under an arrangement (including remuneration 
                for specific physicians' services furnished to 
                a nonprofit blood center) if--
                          [(i) the arrangement is set out in 
                        writing, signed by the parties, and 
                        specifies the services covered by the 
                        arrangement,
                          [(ii) the arrangement covers all of 
                        the services to be provided by the 
                        physician (or an immediate family 
                        member of such physician) to the 
                        entity,
                          [(iii) the aggregate services 
                        contracted for do not exceed those that 
                        are reasonable and necessary for the 
                        legitimate business purposes of the 
                        arrangement,
                          [(iv) the term of the arrangement is 
                        for at least 1 year,
                          [(v) the compensation to be paid over 
                        the term of the arrangement is set in 
                        advance, does not exceed fair market 
                        value, and except in the case of a 
                        physician incentive plan described in 
                        subparagraph (B), is not determined in 
                        a manner that takes into account the 
                        volume or value of any referrals or 
                        other business generated between the 
                        parties,
                          [(vi) the services to be performed 
                        under the arrangement do not involve 
                        the counseling or promotion or a 
                        business arrangement or other activity 
                        that violates any State or Federal law, 
                        and
                          [(vii) the arrangement meets such 
                        other requirements as the Secretary may 
                        impose by regulation as needed to 
                        protect against program or patient 
                        abuse.
                  [(B) Physician incentive plan exception.--
                          [(i) In general.--In the case of a 
                        physician incentive plan (as defined in 
                        clause (ii)) between a physician and an 
                        entity, the compensation may be 
                        determined in a manner (through a 
                        withhold, capitation, bonus, or 
                        otherwise) that takes into account 
                        directly or indirectly the volume or 
                        value of any referrals or other 
                        business generated between the parties, 
                        if the plan meets the following 
                        requirements:
                                  [(I) No specific payment is 
                                made directly or indirectly 
                                under the plan to a physician 
                                or a physician group as an 
                                inducement to reduce or limit 
                                medically necessary services 
                                provided with respect to a 
                                specific individual enrolled 
                                with the entity.
                                  [(II) In the case of a plan 
                                that places a physician or a 
                                physician group at substantial 
                                financial risk as determined by 
                                the Secretary pursuant to 
                                section 1876(i)(8)(A)(ii), the 
                                plan complies with any 
                                requirements the Secretary may 
                                impose pursuant to such 
                                section.
                                  [(III) Upon request by the 
                                Secretary, the entity provides 
                                the Secretary with access to 
                                descriptive information 
                                regarding the plan, in order to 
                                permit the Secretary to 
                                determine whether the plan is 
                                in compliance with the 
                                requirements of this clause.
                          [(ii) Physician incentive plan 
                        defined.--For purposes of this 
                        subparagraph, the term ``physician 
                        incentive plan'' means any compensation 
                        arrangement between an entity and a 
                        physician or physician group that may 
                        directly or indirectly have the effect 
                        of reducing or limiting services 
                        provided with respect to individuals 
                        enrolled with the entity.
          [(4) Remuneration unrelated to the provision of 
        designated health services.--In the case of 
        remuneration which is provided by a hospital to a 
        physician if such remuneration does not relate to the 
        provision of designated health services.
          [(5) Physician recruitment.--In the case of 
        remuneration which is provided by a hospital to a 
        physician to induce the physician to relocate to the 
        geographic area served by the hospital in order to be a 
        member of the medical staff of the hospital, if--
                  [(A) the physician is not required to refer 
                patients to the hospital,
                  [(B) the amount of the remuneration under the 
                arrangement is not determined in a manner that 
                takes into account (directly or indirectly) the 
                volume or value of any referrals by the 
                referring physician, and
                  [(C) the arrangement meets such other 
                requirements as the Secretary may impose by 
                regulation as needed to protect against program 
                or patient abuse.
          [(6) Isolated transactions.--In the case of an 
        isolated financial transaction, such as a one-time sale 
        of property or practice, if--
                  [(A) the requirements described in 
                subparagraphs (B) and (C) of paragraph (2) are 
                met with respect to the entity in the same 
                manner as they apply to an employer, and
                  [(B) the transaction meets such other 
                requirements as the Secretary may impose by 
                regulation as needed to protect against program 
                or patient abuse.
          [(7) Certain group practice arrangements with a 
        hospital.--
                  [(A) In general.--An arrangement between a 
                hospital and a group under which designated 
                health services are provided by the group but 
                are billed by the hospital if--
                          [(i) with respect to services 
                        provided to an inpatient of the 
                        hospital, the arrangement is pursuant 
                        to the provision of inpatient hospital 
                        services under section 1861(b)(3),
                          [(ii) the arrangement began before 
                        December 19, 1989, and has continued in 
                        effect without interruption since such 
                        date,
                          [(iii) with respect to the designated 
                        health services covered under the 
                        arrangement, substantially all of such 
                        services furnished to patients of the 
                        hospital are furnished by the group 
                        under the arrangement,
                          [(iv) the arrangement is pursuant to 
                        an agreement that is set out in writing 
                        and that specifies the services to be 
                        provided by the parties and the 
                        compensation for services provided 
                        under the agreement,
                          [(v) the compensation paid over the 
                        term of the agreement is consistent 
                        with fair market value and the 
                        compensation per unit of services is 
                        fixed in advance and is not determined 
                        in a manner that takes into account the 
                        volume or value of any referrals or 
                        other business generated between the 
                        parties,
                          [(vi) the compensation is provided 
                        pursuant to an agreement which would be 
                        commercially reasonable even if no 
                        referrals were made to the entity, and
                          [(vii) the arrangement between the 
                        parties meets such other requirements 
                        as the Secretary may impose by 
                        regulation as needed to protect against 
                        program or patient abuse.
          [(8) Payments by a physician for items and 
        services.--Payments made by a physician--
                  [(A) to a laboratory in exchange for the 
                provision of clinical laboratory services, or
                  [(B) to an entity as compensation for other 
                items or services if the items or services are 
                furnished at a price that is consistent with 
                fair market value.
  [(f) Reporting Requirements.--Each entity providing covered 
items or services for which payment may be made under this 
title shall provide the Secretary with the information 
concerning the entity's ownership, investment, and compensation 
arrangements, including--
          [(1) the covered items and services provided by the 
        entity, and
          [(2) the names and unique physician identification 
        numbers of all physicians with an ownership or 
        investment interest (as described in subsection 
        (a)(2)(A)), or with a compensation arrangement (as 
        described in subsection (a)(2)(B)), in the entity, or 
        whose immediate relatives have such an ownership or 
        investment interest or who have such a compensation 
        relationship with the entity.
Such information shall be provided in such form, manner, and at 
such times as the Secretary shall specify. The requirement of 
this subsection shall not apply to designated health services 
provided outside the United States or to entities which the 
Secretary determines provides services for which payment may be 
made under this title very infrequently.]
  (g) Sanctions.--
          (1) * * *
          * * * * * * *
          [(5) Failure to report information.--Any person who 
        is required, but fails, to meet a reporting requirement 
        of subsection (f) is subject to a civil money penalty 
        of not more than $10,000 for each day for which 
        reporting is required to have been made. The provisions 
        of section 1128A (other than the first sentence of 
        subsection (a) and other than subsection (b)) shall 
        apply to a civil money penalty under the previous 
        sentence in the same manner as such provisions apply to 
        a penalty or proceeding under section 1128A(a).]
  (h) Definitions and Special Rules.--For purposes of this 
section:
          [(1) Compensation arrangement; remuneration.--(A) The 
        term ``compensation arrangement'' means any arrangement 
        involving any remuneration between a physician (or an 
        immediate family member of such physician) and an 
        entity other than an arrangement involving only 
        remuneration described in subparagraph (C).
          [(B) The term ``remuneration'' includes any 
        remuneration, directly or indirectly, overtly or 
        covertly, in cash or in kind.
          [(C) Remuneration described in this subparagraph is 
        any remuneration consisting of any of the following:
                  [(i) The forgiveness of amounts owed for 
                inaccurate tests or procedures, mistakenly 
                performed tests or procedures, or the 
                correction of minor billing errors.
                  [(ii) The provision of items, devices, or 
                supplies that are used solely to--
                          [(I) collect, transport, process, or 
                        store specimens for the entity 
                        providing the item, device, or supply, 
                        or
                          [(II) order or communicate the 
                        results of tests or procedures for such 
                        entity.
                  [(iii) A payment made by an insurer or a 
                self-insured plan to a physician to satisfy a 
                claim, submitted on a fee for service basis, 
                for the furnishing of health services by that 
                physician to an individual who is covered by a 
                policy with the insurer or by the self-insured 
                plan, if--
                          [(I) the health services are not 
                        furnished, and the payment is not made, 
                        pursuant to a contract or other 
                        arrangement between the insurer or the 
                        plan and the physician,
                          [(II) the payment is made to the 
                        physician on behalf of the covered 
                        individual and would otherwise be made 
                        directly to such individual,
                          [(III) the amount of the payment is 
                        set in advance, does not exceed fair 
                        market value, and is not determined in 
                        a manner that takes into account 
                        directly or indirectly the volume or 
                        value of any referrals, and
                          [(IV) the payment meets such other 
                        requirements as the Secretary may 
                        impose by regulation as needed to 
                        protect against program or patient 
                        abuse.
          [(2) Employee.--An individual is considered to be 
        ``employed by'' or an ``employee'' of an entity if the 
        individual would be considered to be an employee of the 
        entity under the usual common law rules applicable in 
        determining the employer-employee relationship (as 
        applied for purposes of section 3121(d)(2) of the 
        Internal Revenue Code of 1986).
          [(3) Fair market value.--The term ``fair market 
        value'' means the value in arms length transactions, 
        consistent with the general market value, and, with 
        respect to rentals or leases, the value of rental 
        property for general commercial purposes (not taking 
        into account its intended use) and, in the case of a 
        lease of space, not adjusted to reflect the additional 
        value the prospective lessee or lessor would attribute 
        to the proximity or convenience to the lessor where the 
        lessor is a potential source of patient referrals to 
        the lessee.]
          (1) Shared facility related definitions.--
                  (A) Shared facility service.--The term 
                ``shared facility service'' means, with respect 
                to a shared facility, a designated health 
                service furnished by the facility to patients 
                of shared facility physicians.
                  (B) Shared facility.--The term ``shared 
                facility'' means an entity that furnishes 
                shared facility services under a shared 
                facility arrangement.
                  (C) Shared facility physician.--The term 
                ``shared facility physician'' means, with 
                respect to a shared facility, a physician (or a 
                group practice of which the physician is a 
                member) who has a financial relationship under 
                a shared facility arrangement with the 
                facility.
                  (D) Shared facility arrangement.--The term 
                ``shared facility arrangement'' means, with 
                respect to the provision of shared facility 
                services in a building, a financial 
                arrangement--
                          (i) which is only between physicians 
                        who are providing services (unrelated 
                        to shared facility services) in the 
                        same building,
                          (ii) in which the overhead expenses 
                        of the facility are shared, in 
                        accordance with methods previously 
                        determined by the physicians in the 
                        arrangement, among the physicians in 
                        the arrangement, and
                          (iii) which, in the case of a 
                        corporation, is wholly owned and 
                        controlled by shared facility 
                        physicians.
          (4) Group practice.--
                  (A) Definition of group practice.--The term 
                ``group practice'' means a group of 2 or more 
                physicians legally organized as a partnership, 
                professional corporation, foundation, not-for-
                profit corporation, faculty practice plan, or 
                similar association--
                          (i) * * *
          * * * * * * *
                          [(iv) except as provided in 
                        subparagraph (B)(i), in which no 
                        physician who is a member of the group 
                        directly or indirectly receives 
                        compensation based on the volume or 
                        value of referrals by the physician,]
                          (v) in which members of the group 
                        personally conduct no less than 75 
                        percent of the physician-patient 
                        encounters of the group practice, and
                          [(vi) which meets such other 
                        standards as the Secretary may impose 
                        by regulation.]
                  (B) Special [rules.--
                          [(i) Profits and productivity 
                        bonuses.--A physician in a group 
                        practice may be paid a share of overall 
                        profits of the group, or a productivity 
                        bonus based on services personally 
                        performed or services incident to such 
                        personally performed services, so long 
                        as the share or bonus is not determined 
                        in any manner which is directly related 
                        to the volume or value of referrals by 
                        such physician.
                          [(ii) Faculty] rules for faculty 
                        practice plans.--In the case of a 
                        faculty practice plan associated with a 
                        hospital, institution of higher 
                        education, or medical school with an 
                        approved medical residency training 
                        program in which physician members may 
                        provide a variety of different 
                        specialty services and provide 
                        professional services both within and 
                        outside the group, as well as perform 
                        other tasks such as research, 
                        subparagraph (A) shall be applied only 
                        with respect to the services provided 
                        within the faculty practice plan.
                  (C) Member of a group.--A physician is a 
                ``member'' of a group if the physician is an 
                owner or a bona fide employee, or both, of the 
                group.
          (5) Referral; referring physician.--
                  (A) Physicians' services.--Except as provided 
                in subparagraph (C), in the case of [an item or 
                service] a designated health service for which 
                payment may be made under part B, the request 
                by a physician for [the item or service] the 
                designated health service, including the 
                request by a physician for a consultation with 
                another physician (and any test or procedure 
                ordered by, or to be performed by (or under the 
                supervision of) that other physician), 
                constitutes a ``referral'' by a ``referring 
                physician''.
          * * * * * * *
                  (C) Clarification respecting certain services 
                integral to a consultation by certain 
                specialists.--A request by a pathologist for 
                clinical diagnostic laboratory tests and 
                pathological examination services[, a request 
                by a radiologist for diagnostic radiology 
                services, and a request by a radiation 
                oncologist for radiation therapy,] and a 
                request by a radiologist for magnetic resonance 
                imaging or for computerized tomography if such 
                services are furnished by (or under the 
                supervision of) such pathologist, [radiologist, 
                or radiation oncologist] or radiologist 
                pursuant to a consultation requested by another 
                physician does not constitute a ``referral'' by 
                a ``referring physician''.
          (6) Designated health services.--The term 
        ``designated health services'' means any of the 
        following items or services:
                  (A) * * *
                  [(B) Physical therapy services.
                  [(C) Occupational therapy services.
                  [(D) Radiology services, including magnetic 
                resonance imaging, computerized axial 
                tomography scans, and ultrasound services.
                  [(E) Radiation therapy services and supplies.
                  [(F) Durable medical equipment and supplies.
                  [(G) Parenteral and enteral nutrients, 
                equipment, and supplies.
                  [(H) Prosthetics, orthotics, and prosthetic 
                devices and supplies.
                  [(I) Home health services.
                  [(J) Outpatient prescription drugs.
                  [(K) Inpatient and outpatient hospital 
                services.]
                  (B) Parenteral and enteral nutrients, 
                equipment, and supplies.
                  (C) Magnetic resonance imaging and 
                computerized tomography services.
                  (D) Outpatient physical or occupational 
                therapy services.
          (7) General supervision.--An individual is considered 
        to be under the ``general supervision'' of a physician 
        if the physician (or group practice of which the 
        physician is a member) is legally responsible for the 
        services performed by the individual and for ensuring 
        that the individual meets licensure and certification 
        requirements, if any, applicable under other provisions 
        of law, regardless of whether or not the physician is 
        physically present when the individual furnishes an 
        item or service.
  (i) Preemption of State Law.--This section preempts State law 
to the extent State law is inconsistent with this section.
          * * * * * * *

                    Part C--Miscellaneous Provisions

          * * * * * * *

    certification of medicare supplemental health insurance policies

  Sec. 1882. (a) * * *
          * * * * * * *
  (d)(1) Whoever knowingly and willfully makes or causes to be 
made or induces or seeks to induce the making of any false 
statement or representation of a material fact with respect to 
the compliance of any policy with the standards and 
requirements set forth in subsection (c) or in regulations 
promulgated pursuant to such subsection, or with respect to the 
use of the emblem designed by the Secretary under subsection 
(a), shall be fined under title 18, United States Code, or 
imprisoned not more than 5 years, or both, and, in addition to 
or in lieu of such a criminal penalty, is subject to a civil 
money penalty of not to exceed $5,000 for each such prohibited 
act.
          * * * * * * *
  (3)(A)[(i) It is unlawful for a person to sell or issue to an 
individual entitled to benefits under part A or enrolled under 
part B of this title--
          [(I) a health insurance policy with knowledge that 
        the policy duplicates health benefits to which the 
        individual is otherwise entitled under this title or 
        title XIX,
          [(II) a medicare supplemental policy with knowledge 
        that the individual is entitled to benefits under 
        another medicare supplemental policy, or
          [(III) a health insurance policy (other than a 
        medicare supplemental policy) with knowledge that the 
        policy duplicates health benefits to which the 
        individual is otherwise entitled, other than benefits 
        to which the individual is entitled under a requirement 
        of State or Federal law.]
  (i) It is unlawful for a person to sell or issue to an 
individual entitled to benefits under part A or enrolled under 
part B of this title or electing a MedicarePlus product under 
section 1805--
          (I) a health insurance policy (other than a medicare 
        supplemental policy) with knowledge that the policy 
        duplicates health benefits to which the individual is 
        otherwise entitled under this title or title XIX,
          (II) in the case of an individual not electing a 
        MedicarePlus product, a medicare supplemental policy 
        with knowledge that the individual is entitled to 
        benefits under another medicare supplemental policy, or
          (III) in the case of an individual electing a 
        MedicarePlus product, a medicare supplemental policy 
        with knowledge that the policy duplicates health 
        benefits to which the individual is otherwise entitled 
        under this title or under another medicare supplemental 
        policy.
          * * * * * * *
  (iii) A seller (who is not the issuer of a health insurance 
policy) shall not be considered to violate [clause (i)] clause 
(i)(II) with respect to the sale of a medicare supplemental 
policy if the policy is sold in compliance with subparagraph 
(B).
  (iv) For purposes of this subparagraph a health insurance 
policy shall be considered to ``duplicate'' benefits under this 
title only when, under its terms, the policy provides specific 
reimbursement for identical items and services to the extent 
paid for under this title, and a health insurance policy 
providing for benefits which are payable to or on behalf of an 
individual without regard to other health benefit coverage of 
such individual is not considered to ``duplicate'' any health 
benefits under this title.
  (v) For purposes of this subparagraph, a health insurance 
policy (or a rider to an insurance contract which is not a 
health insurance policy), including a policy (such as a long-
term care insurance contract described in section 7702B(b) of 
the Internal Revenue Code of 1986, as added by the Contract 
with America Tax Relief Act of 1995 (H.R. 1215)) providing 
benefits for long-term care, nursing home care, home health 
care, or community-based care, that coordinates against or 
excludes items and services available or paid for under this 
title and (for policies sold or issued after January 1, 1996) 
that discloses such coordination or exclusion in the policy's 
outline of coverage, is not considered to `duplicate' health 
benefits under this title. For purposes of this clause, the 
terms ``coordinates'' and ``coordination'' mean, with respect 
to a policy in relation to health benefits under this title, 
that the policy under its terms is secondary to, or excludes 
from payment, items and services to the extent available or 
paid for under this title.
  (vi) Notwithstanding any other provision of law, no criminal 
or civil penalty may be imposed at any time under this 
subparagraph and no legal action may be brought or continued at 
any time in any Federal or State court if the penalty or action 
is based on an act or omission that occurred after November 5, 
1991, and before the date of the enactment of this clause, and 
relates to the sale, issuance, or renewal of any health 
insurance policy during such period, if such policy meets the 
requirements of clause (iv) or (v).
  (vii) A State may not impose, with respect to the sale or 
issuance of a policy (or rider) that meets the requirements of 
this title pursuant to clause (iv) or (v) to an individual 
entitled to benefits under part A or enrolled under part B or 
enrolled under a MedicarePlus product under part C, any 
requirement based on the premise that such a policy or rider 
duplicates health benefits to which the individual is otherwise 
entitled under this title.
  (B)(i) It is unlawful for a person to issue or sell a 
medicare supplemental policy to an individual entitled to 
benefits under part A or enrolled under part B, whether 
directly, through the mail, or otherwise, unless--
          (I) the person obtains from the individual, as part 
        of the application for the issuance or purchase and on 
        a form described in clause (II), a written statement 
        signed by the individual stating, to the best of the 
        individual's knowledge, what health insurance policies 
        (including any MedicarePlus product) the individual 
        has, from what source, and whether the individual is 
        entitled to any medical assistance under title XIX, 
        whether as a qualified medicare beneficiary or 
        otherwise, and
          * * * * * * *
  (C) Subparagraph (A) shall not apply with respect to [(i)] 
the sale or issuance of a group policy or plan of one or more 
employers or labor organizations, or of the trustees of a fund 
established by one or more employers or labor organizations (or 
combination thereof), for employees or former employees (or 
combination thereof) or for members or former members (or 
combination thereof) of the labor organizations[, (ii) the sale 
or issuance of a policy or plan described in subparagraph 
(A)(i)(I) (other than a medicare supplemental policy to an 
individual entitled to any medical assistance under title XIX) 
under which all the benefits are fully payable directly to or 
on behalf of the individual without regard to other health 
benefit coverage of the individual but only if (for policies 
sold or issued more than 60 days after the date the statements 
are published or promulgated under subparagraph (D)) there is 
disclosed in a prominent manner as part of (or together with) 
the application the applicable statement (specified under 
subparagraph (D)) of the extent to which benefits payable under 
the policy or plan duplicate benefits under this title, or 
(iii) the sale or issuance of a policy or plan described in 
subparagraph (A)(i)(III) under which all the benefits are fully 
payable directly to or on behalf of the individual without 
regard to other health benefit coverage of the individual.
  [(D)(i) If--
          [(I) within the 90-day period beginning on the date 
        of the enactment of this subparagraph, the National 
        Association of Insurance Commissioners develops (after 
        consultation with consumer and insurance industry 
        representatives) and submits to the Secretary a 
        statement for each of the types of health insurance 
        policies (other than medicare supplemental policies and 
        including, but not limited to, as separate types of 
        policies, policies paying directly to the beneficiary 
        fixed, cash benefits, and policies that limit benefit 
        payments to specific diseases) which are sold or issued 
        to persons entitled to health benefits under this 
        title, of the extent to which benefits payable under 
        the policy or plan duplicate benefits under this title, 
        and
          [(II) the Secretary approves all the statements 
        submitted as meeting the requirements of subclause (I),
each such statement shall be (for purposes of subparagraph (C)) 
the statement specified under this subparagraph for the type of 
policy involved. The Secretary shall review and approve (or 
disapprove) all the statements submitted under subclause (I) 
within 30 days after the date of their submittal. Upon approval 
of such statements, the Secretary shall publish such 
statements.
  [(ii) If the Secretary does not approve the statements under 
clause (i) or the statements are not submitted within the 90-
day period specified in such clause, the Secretary shall 
promulgate (after consultation with consumer and insurance 
industry representatives and not later than 90 days after the 
date of disapproval or the end of such 90-day period (as the 
case may be)) a statement for each of the types of health 
insurance policies (other than medicare supplemental policies 
and including, but not limited to, as separate types of 
policies, policies paying directly to the beneficiary fixed, 
cash benefits, and policies that limit benefit payments to 
specific diseases) which are sold or issued to persons entitled 
to health benefits under this title, of the extent to which 
benefits payable under the policy or plan duplicate benefits 
under this title, and each such statement shall be (for 
purposes of subparagraph (C)) the statement specified under 
this subparagraph for the type of policy involved.]
          * * * * * * *
  (g)(1) For purposes of this section, a medicare supplemental 
policy is a health insurance policy or other health benefit 
plan offered by a private entity to individuals who are 
entitled to have payment made under this title, which provides 
reimbursement for expenses incurred for services and items for 
which payment may be made under this title but which are not 
reimbursable by reason of the applicability of deductibles, 
coinsurance amounts, or other limitations imposed pursuant to 
this title; but does not include any such policy or plan of one 
or more employers or labor organizations, or of the trustees of 
a fund established by one or more employers or labor 
organizations (or combination thereof), for employees or former 
employees (or combination thereof) or for members or former 
members (or combination thereof) of the labor organizations and 
does not include a MedicarePlus product or a policy or plan of 
an eligible organization (as defined in section 1876(b)) if the 
policy or plan provides benefits pursuant to a contract under 
section 1876 or an approved demonstration project described in 
section 603(c) of the Social Security Amendments of 1983, 
section 2355 of the Deficit Reduction Act of 1984, or section 
9412(b) of the Omnibus Budget Reconciliation Act of 1986, or, 
during the period beginning on the date specified in subsection 
(p)(1)(C) and ending on December 31, 1995, a policy or plan of 
an organization if the policy or plan provides benefits 
pursuant to an agreement under section 1833(a)(1)(A). For 
purposes of this section, the term ``policy'' includes a 
certificate issued under such policy.
          * * * * * * *
  (u)(1) Notwithstanding the previous provisions of this 
section, the following provisions shall not apply to a health 
insurance policy (other than a medicare supplemental policy) 
provided to an individual who has elected the MedicarePlus 
option under section 1805:
          (A) Subsections (o)(1), (o)(2), (p)(1)(A)(i), (p)(2), 
        (p)(3), (p)(8), and (p)(9) (insofar as they relate to 
        limitations on benefits or groups of benefits that may 
        be offered).
          (B) Subsection (r) (relating to loss-ratios).
  (2)(A) It is unlawful for a person to sell or issue a policy 
described in subparagraph (B) to an individual with knowledge 
that the individual has in effect under section 1805 an 
election of a high deductible/medisave product.
  (B) A policy described in this subparagraph is a health 
insurance policy that provides for coverage of expenses that 
are otherwise required to be counted toward meeting the annual 
deductible amount provided under the high deductible/medisave 
product.

              HOSPITAL PROVIDERS OF EXTENDED CARE SERVICES

  Sec. 1883. (a) * * *
          * * * * * * *
  (f) [A hospital which enters into an agreement with the 
Secretary under this section shall be required to meet those 
conditions applicable to skilled nursing facilities relating to 
discharge planning and the social services function (and 
staffing requirements to satisfy it) which are promulgated by 
the Secretary under section 1819.] Services furnished by [such 
a hospital] a hospital which enters into an agreement with the 
Secretary under this section which would otherwise constitute 
post-hospital extended care services if furnished by a skilled 
nursing facility shall be subject to the same requirements 
applicable to such services when furnished by a skilled nursing 
facility except for those requirements the Secretary determines 
are inappropriate in the case of these services being furnished 
by a hospital under this section.
          * * * * * * *

          payment to hospitals for inpatient hospital services

  Sec. 1886. (a)(1)(A)(i) The Secretary,
          * * * * * * *
  (b)(1) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, if the operating costs of inpatient 
hospital services (as defined in subsection (a)(4)) of a 
hospital (other than a subsection (d) hospital, as defined in 
subsection (d)(1)(B)) for a cost reporting period subject to 
this paragraph--
          * * * * * * *
  (3)(A) Except as provided in subparagraphs (C), (D), [and 
(E)] (E), and (F) for purposes of this subsection, the term 
``target amount'' means, with respect to a hospital for a 
particular 12-month cost reporting period--
          (i) * * *
          * * * * * * *
  (B)(i) For purposes of subsection (d) for discharges 
occurring during a fiscal year, the ``applicable percentage 
increase'' shall be--
          (I) * * *
          * * * * * * *
          [(XI) for fiscal year 1996, the market basket 
        percentage increase minus 2.0 percentage points for 
        hospitals in all areas,
          [(XII) for fiscal year 1997, the market basket 
        percentage increase minus 0.5 percentage point for 
        hospitals in all areas, and
          [(XIII) for fiscal year 1998 and each subsequent 
        fiscal year, the market basket percentage increase for 
        hospitals in all areas.]
          (XI) for fiscal year 1996, the market basket 
        percentage increase minus 2.5 percentage points for 
        hospitals in all areas,
          (XII) for each of the fiscal years 1997 through 2002, 
        the market basket percentage increase minus 2.0 
        percentage points for hospitals in all areas, and
          (XIII) for fiscal year 2003 and each subsequent 
        fiscal year, the market basket percentage increase for 
        hospitals in all areas.
  (ii) For purposes of subparagraphs [(A) and (E)] (A), (E), 
and (F), the ``applicable percentage increase'' for 12-month 
cost reporting periods beginning during--
          (I) fiscal year 1986, is 0.5 percent,
          (II) fiscal year 1987, is 1.15 percent,
          (III) fiscal year 1988, is the market basket 
        percentage increase minus 2.0 percentage points,
          (IV) a subsequent fiscal year ending on or before 
        September 30, 1993, is the market basket percentage 
        increase,
          (V) fiscal years 1994 through [1997] 2002, is the 
        market basket percentage increase minus the applicable 
        reduction (as defined in clause (v)(II)), or in the 
        case of a hospital for a fiscal year for which the 
        hospital's update adjustment percentage (as defined in 
        clause (v)(I)) is at least 10 percent, the market 
        basket percentage increase, and
          (VI) subsequent fiscal years is the market basket 
        percentage increase.
          * * * * * * *
  (iv) For purposes of subparagraphs (C) and (D), the 
``applicable percentage increase'' is--
          (I) for 12-month cost reporting periods beginning 
        during fiscal years 1986 through 1993, the applicable 
        percentage increase specified in clause (ii),
          (II) for fiscal year 1994, the market basket 
        percentage increase minus 2.3 percentage points 
        (adjusted to exclude any portion of a cost reporting 
        period beginning during fiscal year 1993 for which the 
        applicable percentage increase is determined under 
        subparagraph (I)),
          (III) for fiscal year 1995, the market basket 
        percentage increase minus 2.2 percentage points, [and
          [(IV) for fiscal year 1996 and each subsequent fiscal 
        year, the applicable percentage increase under clause 
        (i).]
          (IV) for each of the fiscal years 1996 through 2000, 
        the market basket percentage increase minus 1 
        percentage points, and
          (V) for fiscal year 2001 and each subsequent fiscal 
        year, the applicable percentage increase under clause 
        (i).
          * * * * * * *
  (F)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)), the term ``target amount'' means--
          (I) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the 
        hospital, the allowable operating costs of inpatient 
        hospital services (as defined in subsection (a)(4)) 
        recognized under this title for the hospital for the 
        12-month cost reporting period beginning during fiscal 
        year 1991; or
          (II) with respect to a later cost reporting period, 
        the target amount for the preceding cost reporting 
        period, increase by the applicable percentage increase 
        under subparagraph (B)(ii) for that later cost 
        reporting period.
  (ii) In clause (i), a ``qualified long-term care hospital'' 
means, with respect to a cost reporting period, a hospital 
described in clause (iv) of subsection (d)(1)(B) during fiscal 
year 1995 for which the hospital's allowable operating costs of 
inpatient hospital services recognized under this title for 
each of the two most recent previous 12-month cost reporting 
periods exceeded the hospital's target amount determined under 
this paragraph for such cost reporting periods, if the 
hospital--
          (I) has a disproportionate patient percentage during 
        such cost reporting period (as determined by the 
        Secretary under subsection (d)(5)(F)(vi) as if the 
        hospital were a subsection (d) hospital) of at least 25 
        percent, or
          (II) is located in a State for which no payment is 
        made under the State plan under title XIX for days of 
        inpatient hospital services furnished to any individual 
        in excess of the limit on the number of days of such 
        services furnished to the individual for which payment 
        may be made under this title.
          * * * * * * *
  (d)(1)(A) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, the amount of the payment with 
respect to the operating costs of inpatient hospital services 
(as defined in subsection (a)(4)) of a subsection (d) hospital 
(as defined in subparagraph (B)) for inpatient hospital 
discharges in a cost reporting period or in a fiscal year--
          (i) * * *
          * * * * * * *
  (B) As used in this section, the term ``subsection (d) 
hospital'' means a hospital located in one of the fifty States 
or the District of Columbia other than--
          (i) * * *
          * * * * * * *
          (v) a hospital that the Secretary has classified, at 
        any time on or before December 31, 1990, (or, in the 
        case of a hospital that, as of the date of the 
        enactment of this clause, is located in a State 
        operating a demonstration project under section 
        1814(b), on or before December 31, 1991) for purposes 
        of applying exceptions and adjustments to payment 
        amounts under this subsection, as a hospital involved 
        extensively in treatment for or research on cancer;
and, in accordance with regulations of the Secretary, does not 
include a psychiatric or rehabilitation unit of the hospital 
which is a distinct part of the hospital (as defined by the 
Secretary)[.], or a hospital classified by the Secretary as a 
long-term care hospital on or before September 30, 1995, and 
located in the same building as, or on the same campus as, 
another hospital.
          * * * * * * *
(2)(A) * * *
          * * * * * * *
          (C) Standardizing amounts.--The Secretary shall 
        standardize the amount updated under subparagraph (B) 
        for each hospital by--
                  (i) excluding an estimate of indirect medical 
                education costs (taking into account, for 
                discharges occurring after September 30, 1986, 
                the amendments made by section 9104(a) of the 
                Medicare and Medicaid Budget Reconciliation 
                Amendments of [1985] 1985, but (for discharges 
                occurring after September 30, 1995) not taking 
                into account any reductions in such costs 
                resulting from the amendments made by section 
                15412(a) of the Medicare Preservation Act of 
                1995),
          * * * * * * *
                  (iv) for discharges occurring on or after 
                October 1, 1986, excluding an estimate of the 
                additional payments to certain hospitals to be 
                made under paragraph (5)(F), except that the 
                Secretary shall not exclude additional payments 
                under such paragraph made as a result of the 
                enactment of section 6003(c) of the Omnibus 
                Budget Reconciliation Act of 1989 or the 
                enactment of section 4002(b) of the Omnibus 
                Budget Reconciliation Act of 1990[.], and the 
                Secretary shall not take into account any 
                reductions in the amount of such additional 
                payments resulting from the amendments made by 
                section 15502(a) of the Medicare Preservation 
                Act of 1995.
          * * * * * * *
  (5)(A)(i) For discharges occurring during fiscal years ending 
on or before September 30, 1997, the Secretary shall provide 
for an additional payment for a subsection (d) hospital for any 
discharge in a diagnosis-related group, the length of stay of 
which exceeds the mean length of stay for discharges within 
that group by a fixed number of days, or exceeds such mean 
length of stay by some fixed number of standard deviations, 
whichever is the fewer number of days.
          * * * * * * *
  (B) [The Secretary shall provide] For discharges occurring on 
or before September 30, 1996, the Secretary shall provide for 
an additional payment amount for subsection (d) hospitals with 
indirect costs of medical education, in an amount computed in 
the same manner as the adjustment for such costs under 
regulations (in effect as of January 1, 1983) under subsection 
(a)(2), except as follows:
          (i) The amount of such additional payment shall be 
        determined by multiplying (I) the sum of the amount 
        determined under paragraph (1)(A)(ii)(II) (or, if 
        applicable, the amount determined under paragraph 
        (1)(A)(iii)) and the amount paid to the hospital under 
        subparagraph (A), by (II) the indirect teaching 
        adjustment factor described in clause (ii).
          (ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor for discharges occurring on 
        or after October 1, [1988,] 1999, is equal to [1.89] 
        1.38  (((1+r) to the nth power) -1), where 
        ``r'' is the ratio of the hospital's full-time 
        equivalent interns and residents to beds and ``n'' 
        equals .405. In the case of discharges occurring on or 
        after October 1, 1995, and before October 1, 1999, the 
        preceding sentence applies to the same extent and in 
        the same manner as the sentence applies to discharges 
        occurring on or after October 1, 1999, except that the 
        term ``1.38'' is deemed to be ``1.48''.
          * * * * * * *
  (F)(i) For discharges occurring on or after May 1, 1986, the 
Secretary shall provide, in accordance with this subparagraph, 
for an additional payment amount for each subsection (d) 
hospital which--
          (I) * * *
          * * * * * * *
  (ii) [The amount] Subject to clause (ix), the amount of such 
payment for each discharge shall be determined by multiplying 
(I) the sum of the amount determined under paragraph 
(1)(A)(ii)(II) (or, if applicable, the amount determined under 
paragraph (1)(A)(iii)) and the amount paid to the hospital 
under subparagraph (A) for that discharge, by (II) the 
disproportionate share adjustment percentage established under 
clause (iii) or (iv) for the cost reporting period in which the 
discharge occurs.
          * * * * * * *
  (ix) In the case of discharges occurring on or after October 
1, 1995, the additional payment amount otherwise determined 
under clause (ii) shall be reduced as follows:
          (I) For discharges occurring on or after October 1, 
        1995, and on or before September 30, 1996, by 20 
        percent.
          (II) For discharges occurring on or after October 1, 
        1996, and on or before September 30, 1997, by 25 
        percent.
          (III) For discharges occurring on or after October 1, 
        1997, by 30 percent.
          * * * * * * *
  (10)(A) There is hereby established the Medicare Geographic 
Classification Review Board (hereinafter in this paragraph 
referred to as the ``Board'').
          * * * * * * *
  (D)(i) The Secretary shall publish guidelines to be utilized 
by the Board in rendering decisions on applications submitted 
under this paragraph, and shall include in such guidelines the 
following:
          (I) * * *
          * * * * * * *
  (iii) Under the guidelines published by the Secretary under 
clause (i), in the case of a hospital which is classified by 
the Secretary as a rural referral center under paragraph 
(5)(C), the Board may not reject the application of the 
hospital under this paragraph on the basis of any comparison 
between the average hourly wage of the hospital and the average 
hourly wage of hospitals in the area in which it is located.
  [(iii)] (iv) The Secretary shall publish the guidelines 
described in clause (i) by July 1, 1990.
  (e)(1)(A) For cost reporting periods of hospitals beginning 
in fiscal year 1984 or fiscal year 1985, the Secretary shall 
provide for such proportional adjustment in the applicable 
percentage increase (otherwise applicable to the periods under 
subsection (b)(3)(B)) as may be necessary to assure that--
          (i) * * *
          * * * * * * *
  [(2)(A) The Director of the Congressional Office of 
Technology Assessment (hereinafter in this subsection referred 
to as the ``Director'' and the ``Office'', respectively) shall 
provide for appointment of a Prospective Payment Assessment 
Commission (hereinafter in this subsection referred to as the 
``Commission''), to be composed of independent experts 
appointed by the Director (without regard to the provisions of 
title 5, United States Code, governing appointments in the 
competitive service). The Commission shall review the 
applicable percentage increase factor described in subsection 
(b)(3)(B) and make recommendations to the Secretary on the 
appropriate percentage change which should be effected for 
hospital inpatient discharges under subsections (b) and (d) for 
fiscal years beginning with fiscal year 1986. In making its 
recommendations, the Commission shall take into account changes 
in the hospital market-basket described in subsection 
(b)(3)(B), hospital productivity, technological and scientific 
advances, the quality of health care provided in hospitals 
(including the quality and skill level of professional nursing 
required to maintain quality care), and long-term cost-
effectiveness in the provision of inpatient hospital services.
  [(B) In order to promote the efficient and effective delivery 
of high-quality health care services, the Commission shall, in 
addition to carrying out its functions under subparagraph (A), 
study and make recommendations for each fiscal year regarding 
changes in each existing reimbursement policy under this title 
under which payments to an institution are based upon 
prospectively determined rates and the development of new 
institutional reimbursement policies under this title, 
including recommendations relating to payments during such 
fiscal year under the prospective payment system established 
under this section for determining payments for the operating 
costs of inpatient hospital services, including changes in the 
number of diagnosis-related groups used to classify inpatient 
hospital discharges under subsection (d), adjustments to such 
groups to reflect severity of illness, and changes in the 
methods by which hospitals are reimbursed for capital-related 
costs, together with general recommendations on the 
effectiveness and quality of health care delivery systems in 
the United States and the effects on such systems of 
institutional reimbursements under this title.
  [(C) By not later than June 1 of each year, the Commission 
shall submit a report to Congress containing an examination of 
issues affecting health care delivery in the United States, 
including issues relating to--
          [(i) trends in health care costs;
          [(ii) the financial condition of hospitals and the 
        effect of the level of payments made to hospitals under 
        this title on such condition;
          [(iii) trends in the use of health care services; and
          (iv) new methods used by employers, insurers, and 
        others to constrain growth in health care costs.]
  (3)[(A) The Commission, not later than the March 1 before the 
beginning of each fiscal year (beginning with fiscal year 
1986), shall report its recommendations to Congress on an 
appropriate change factor which should be used for inpatient 
hospital services for discharges in that fiscal year, together 
with its general recommendations under paragraph (2)(B) 
regarding the effectiveness and quality of health care delivery 
systems in the United States.
  [(B)] The Secretary, not later than April 1, 1987, for fiscal 
year 1988 and not later than March 1 before the beginning of 
each fiscal year (beginning with fiscal year 1989), shall 
report to the Congress the Secretary's initial estimate of the 
percentage change that the Secretary will recommend under 
paragraph (4) with respect to that fiscal year.
          * * * * * * *
  [(6)(A) The Commission shall consist of 17 individuals. 
Members of the Commission shall first be appointed no later 
than April 1, 1984, for a term of three years, except that the 
Director may provide initially for such shorter terms as will 
insure that (on a continuing basis) the terms of no more than 
seven members expire in any one year.
  [(B) The membership of the Commission shall include 
individuals with national recognition for their expertise in 
health economics, health facility management, reimbursement of 
health facilities or other providers of services which reflect 
the scope of the Commission's responsibilities, and other 
related fields, who provide a mix of different professionals, 
broad geographic representation, and a balance between urban 
and rural representatives, including physicians and registered 
professional nurses, employers, third party payors, individuals 
skilled in the conduct and interpretation of biomedical, health 
services, and health economics research, and individuals having 
expertise in the research and development of technological and 
scientific advances in health care.
  [(C) Subject to such review as the Office deems necessary to 
assure the efficient administration of the Commission, the 
Commission may--
          [(i) employ and fix the compensation of an Executive 
        Director (subject to the approval of the Director of 
        the Office) and such other personnel (not to exceed 25) 
        as may be necessary to carry out its duties (without 
        regard to the provisions of title 5, United States 
        Code, governing appointments in the competitive 
        service);
          [(ii) seek such assistance and support as may be 
        required in the performance of its duties from 
        appropriate Federal departments and agencies;
          [(iii) enter into contracts or make other 
        arrangements, as may be necessary for the conduct of 
        the work of the Commission (without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5));
          [(iv) make advance, progress, and other payments 
        which relate to the work of the Commission;
          [(v) provide transportation and subsistence for 
        persons serving without compensation; and
          [(vi) prescribe such rules and regulations as it 
        deems necessary with respect to the internal 
        organization and operation of the Commission.
Section 10(a)(1) of the Federal Advisory Committee Act shall 
not apply to any portion of a Commission meeting if the 
Commission, by majority vote, determines that such portion of 
such meeting should be closed.
  [(D) While serving on the business of the Commission 
(including traveltime), a member of the Commission shall be 
entitled to compensation at the per diem equivalent of the rate 
provided for level IV of the Executive Schedule under section 
5315 of title 5, United States Code; and while so serving away 
from home and his regular place of business, a member may be 
allowed travel expenses, as authorized by the Chairman of the 
Commission. Physicians serving as personnel of the Commission 
may be provided a physician comparability allowance by the 
Commission in the same manner as Government physicians may be 
provided such an allowance by an agency under section 5948 of 
title 5, United States Code, and for such purpose subsection 
(i) of such section shall apply to the Commission in the same 
manner as it applies to the Tennessee Valley Authority. For 
purposes of pay (other than pay of members of the Commission) 
and employment benefits, rights, and privileges, all personnel 
of the Commission shall be treated as if they were employees of 
the United States Senate.
  [(E) In order to identify medically appropriate patterns of 
health resources use in accordance with paragraph (2), the 
Commission shall collect and assess information on medical and 
surgical procedures and services, including information on 
regional variations of medical practice and lengths of 
hospitalization and on other patient-care data, giving special 
attention to treatment patterns for conditions which appear to 
involve excessively costly or inappropriate services not adding 
to the quality of care provided. In order to assess the safety, 
efficacy, and cost-effectiveness of new and existing medical 
and surgical procedures, the Commission shall, in coordination 
to the extent possible with the Secretary, collect and assess 
factual information, giving special attention to the needs of 
updating existing diagnosis-related groups, establishing new 
diagnosis-related groups, and making recommendations on 
relative weighting factors for such groups to reflect 
appropriate differences in resource consumption in delivering 
safe, efficacious, and cost-effective care. In collecting and 
assessing information, the Commission shall--
          [(i) utilize existing information, both published and 
        unpublished, where possible, collected and assessed 
        either by its own staff or under other arrangements 
        made in accordance with this paragraph;
          [(ii) carry out, or award grants or contracts for, 
        original research and experimentation, including 
        clinical research, where existing information is 
        inadequate for the development of useful and valid 
        guidelines by the Commission; and
          [(iii) adopt procedures allowing any interested party 
        to submit information with respect to medical and 
        surgical procedures and services (including new 
        practices, such as the use of new technologies and 
        treatment modalities), which information the Commission 
        shall consider in making reports and recommendations to 
        the Secretary and Congress.
  [(F) The Commission shall have access to such relevant 
information and data as may be available from appropriate 
Federal agencies and shall assure that its activities, 
especially the conduct of original research and medical 
studies, are coordinated with the activities of Federal 
agencies.
  [(G)(i) The Office shall have unrestricted access to all 
deliberations, records, and data of the Commission, immediately 
upon its request.
  [(ii) In order to carry out its duties under this paragraph, 
the Office is authorized to expend reasonable and neccessary 
funds as mutually agreed upon by the Office and the Commission. 
The Office shall be reimbursed for such funds by the Commission 
from the appropriations made with respect to the Commission.
  [(H) The Commission shall be subject to periodic audit by the 
General Accounting Office.
  [(I)(i) There are authorized to be appropriated such sums as 
may be necessary to carry out the provisions of this paragraph.
  [(ii) Eighty-five percent of such appropriation shall be 
payable from the Federal Hospital Insurance Trust Fund, and 15 
percent of such appropriation shall be payable from the Federal 
Supplementary Medical Insurance Trust Fund.
  [(J) The Commission shall submit requests for appropriations 
in the same manner as the Office submits requests for 
appropriations, but amounts appropriated for the Commission 
shall be separate from amounts appropriated for the Office.]
          * * * * * * *
  (g)(1)(A) Notwithstanding section 1861(v), instead of any 
amounts that are otherwise payable under this title with 
respect to the reasonable costs of subsection (d) hospitals and 
subsection (d) Puerto Rico hospitals for capital-related costs 
of inpatient hospital services, the Secretary shall, for 
hospital cost reporting periods beginning on or after October 
1, 1991, provide for payments for such costs in accordance with 
a prospective payment system established by the Secretary. 
Aggregate payments made under subsection (d) and this 
subsection during fiscal years 1992 through [1995] 2002 shall 
be reduced in a manner that results in a reduction (as 
estimated by the Secretary) in the amount of such payments 
equal to a 10 percent reduction (or a 15 percent reduction in 
the case of payments during fiscal years 1996 through 2002) in 
the amount of payments attributable to capital-related costs 
that would otherwise have been made during such fiscal year had 
the amount of such payments been based on reasonable costs (as 
defined in section 1861(v)). For discharges occurring after 
September 30, 1993, the Secretary shall reduce by 7.4 percent 
the unadjusted standard Federal capital payment rate (as 
described in 42 CFR 412.308(c), as in effect on the date of the 
enactment of the Omnibus Budget Reconciliation Act of 1993) and 
shall (for hospital cost reporting periods beginning on or 
after October 1, 1993) redetermine which payment methodology is 
applied to the hospital under such system to take into account 
such reduction. In addition to the reduction described in the 
preceding sentence, for discharges occurring after September 
30, 1995, the Secretary shall reduce by 7.47 percent the 
unadjusted standard Federal capital payment rate (as described 
in 42 CFR 412.308(c), as in effect on the date of the enactment 
of the Medicare Preservation Act of 1995) and shall reduce by 
8.27 percent the unadjusted hospital-specific rate (as 
described in 42 CFR 412.328(e)(1), as in effect on such date of 
enactment).
  (B) Such system--
          (i) * * *
          * * * * * * *
          (iii) [may provide] shall provide (in accordance with 
        subparagraph (D)) for such exceptions (including 
        appropriate exceptions to reflect capital obligations) 
        as the Secretary determines to be appropriate, and
          (iv) may provide for suitable adjustment to reflect 
        hospital occupancy rate.
  (C)(i) For discharges occurring after September 30, 1995, 
such system shall provide for an adjustment in an amount equal 
to the amount determined under clause (iv) for capital-related 
tax costs for each hospital that is eligible for such 
adjustment.
  (ii) Subject to clause (iii), a hospital is eligible for an 
adjustment under this subparagraph, with respect to discharges 
occurring in a fiscal year, if the hospital--
          (I) is a hospital that may otherwise receive payments 
        under this subsection,
          (II) is not a public hospital, and
          (III) incurs capital-related tax costs for the fiscal 
        year.
  (iii)(I) In the case of a hospital that first incurs capital-
related tax costs in a fiscal year after fiscal year 1992 
because of a change from nonproprietary to proprietary status 
or because the hospital commenced operation after such fiscal 
year, the first fiscal year for which the hospital shall be 
eligible for such adjustment is the second full fiscal year 
following the fiscal year in which the hospital first incurs 
such costs.
  (II) In the case of a hospital that first incurs capital-
related tax costs in a fiscal year after fiscal year 1992 
because of a change in State or local tax laws, the first 
fiscal year for which the hospital shall be eligible for such 
adjustment is the fourth full fiscal year following the fiscal 
year in which the hospital first incurs such costs.
  (iv) The per discharge adjustment under this clause shall be 
equal to the hospital-specific capital-related tax costs per 
discharge of a hospital for fiscal year 1992 (or, in the case 
of a hospital that first incurs capital-related tax costs for a 
fiscal year after fiscal year 1992, for the first full fiscal 
year for which such costs are incurred), updated to the fiscal 
year to which the adjustment applies. Such per discharge 
adjustment shall be added to the Federal capital rate, after 
such rate has been adjusted as described in 42 CFR 412.312 (as 
in effect on the date of the enactment of the Medicare 
Preservation Act of 1995), and before such rate is multiplied 
by the applicable Federal rate percentage.
  (v) For purposes of this subparagraph, capital-related tax 
costs include--
          (I) the costs of taxes on land and depreciable assets 
        owned by a hospital (or related organization) and used 
        for patient care,
          (II) payments in lieu of such taxes (made by 
        hospitals that are exempt from taxation), and
          (III) the costs of taxes paid by a hospital (or 
        related organization) as lessee of land, buildings, or 
        fixed equipment from a lessor that is unrelated to the 
        hospital (or related organization) under the terms of a 
        lease that requires the lessee to pay all expenses 
        (including mortgage, interest, and amortization) and 
        leaves the lessor with an amount free of all claims 
        (sometimes referred to as a ``net net net'' or ``triple 
        net'' lease).
In determining the adjustment required under clause (i), the 
Secretary shall not take into account any capital-related tax 
costs of a hospital to the extent that such costs are based on 
tax rates and assessments that exceed those for similar 
commercial properties.
  (vi) The system shall provide that the Federal capital rate 
for any fiscal year after September 30, 1995, shall be reduced 
by a percentage sufficient to ensure that the adjustments 
required to be paid under clause (i) for a fiscal year neither 
increase nor decrease the total amount that would have been 
paid under this system but for the payment of such adjustments 
for such fiscal year.
  (D) The exceptions under the system provided by the Secretary 
under subparagraph (B)(iii) shall include the provision of 
exception payments under the special exceptions process 
provided under 42 CFR 412.348(g) (as in effect on September 1, 
1995), except that the Secretary shall revise such process as 
follows:
          (i) A hospital with at least 100 beds which is 
        located in an urban area shall be eligible under such 
        process without regard to its disproportionate patient 
        percentage under subsection (d)(5)(F) or whether it 
        qualifies for additional payment amounts under such 
        subsection.
          (ii) The minimum payment level for qualifying 
        hospitals shall be 85 percent.
          (iii) A hospital shall be considered to meet the 
        requirement that it completes the project involved no 
        later than the end of the hospital's last cost 
        reporting period beginning after October 1, 2001, if--
                  (I) the hospital has obtained a certificate 
                of need for the project approved by the State 
                or a local planning authority, and
                  (II) by September 1, 1995, the hospital has 
                expended on the project at least $750,000 or 10 
                percent of the estimated cost of the project.
          (iv) The amount of the exception payment made shall 
        not be reduced by any offsetting amounts.
  [(C)] (E) In this paragraph, the term ``capital-related 
costs'' has the meaning given such term by the Secretary under 
subsection (a)(4) as of September 30, 1987, and does not 
include a return on equity capital.
          * * * * * * *
  (4)(A) Except as provided in subparagraph (B), in determining 
the amount of the payments that may be made under this title 
with respect to all the capital-related costs of inpatient 
hospital services furnished during fiscal years 1996 through 
2002 of a hospital which is not a subsection (d) hospital or a 
subsection (d) Puerto Rico hospital, the Secretary shall reduce 
the amounts of such payments otherwise determined under this 
title by 15 percent.
  (B) Subparagraph (A) shall not apply to payments with respect 
to the capital-related costs of any hospital that is a sole 
community hospital (as defined in subsection (d)(5)(D)(iii) or 
a rural primary care hospital (as defined in section 
1861(mm)(1)).
  (h) Payments for Direct Graduate Medical Education Costs.--
          (1) Substitution of special payment rules.--
        Notwithstanding section 1861(v), instead of any amounts 
        that are otherwise payable under this title with 
        respect to the reasonable costs of hospitals for direct 
        graduate medical education costs, [the Secretary shall 
        provide] the Secretary shall, subject to paragraph (6), 
        provide for payments for such costs in accordance with 
        paragraph (3) of this subsection. In providing for such 
        payments, the Secretary shall provide for an allocation 
        of such payments between part A and part B (and the 
        trust funds established under the respective parts) as 
        reasonably reflects the proportion of direct graduate 
        medical education costs of hospitals associated with 
        the provision of services under each respective part.
          * * * * * * *
          (4) Determination of full-time-equivalent 
        residents.--
                  (A) * * *
          * * * * * * *
                  [(C) Weighting factors for certain 
                residents.--Subject to subparagraph (D), such 
                rules shall provide, in calculating the number 
                of full-time-equivalent residents in an 
                approved residency program--
                          [(i) before July 1, 1986, for each 
                        resident the weighting factor is 1.00,
                          [(ii) on or after July 1, 1986, for a 
                        resident who is in the resident's 
                        initial residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is 1.00,
                          [(iii) on or after July 1, 1986, and 
                        before July 1, 1987, for a resident who 
                        is not in the resident's initial 
                        residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is .75, and
                          [(iv) on or after July 1, 1987, for a 
                        resident who is not in the resident's 
                        initial residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is .50.]
                  (C) Weighting factors for residents.--
                Effective for cost reporting periods beginning 
                on or after October 1, 1997, such rules shall 
                provide that, in the calculation of the number 
                of full-time-equivalent residents in an 
                approved residency program, the weighting 
                factor for a resident who is in the initial 
                residency period (as defined in paragraph 
                (5)(F)) is 1.0 and the weighting factor for a 
                resident who has completed such period is 0.0. 
                (In the case of cost reporting periods 
                beginning before October 1, 1997, the weighting 
                factors that apply in such calculation are the 
                weighting factors that were applicable under 
                this subparagraph on the day before the date of 
                the enactment of the Medicare Preservation Act 
                of 1995.)
          * * * * * * *
                  (F) Limitation on number of residents for 
                certain fiscal years.--Such rules shall provide 
                that for purposes of a cost reporting period 
                beginning on or after October 1, 1995, and on 
                or before September 30, 2002, the number of 
                full-time-equivalent residents determined under 
                this paragraph with respect to an approved 
                medical residency training program may not 
                exceed the number of full-time-equivalent 
                residents with respect to the program as of 
                August 1, 1995 (except that this subparagraph 
                does not apply to any nonphysician teaching 
                program that is approved for purposes of 
                section 1861(b)(6) and that, under paragraph 
                (5)(A), is an approved medical residency 
                training program).
                  (G) Special rules for alien residents.--In 
                the case of individuals who are not citizens or 
                nationals of the United States and who are not 
                citizens of Canada, in the calculation of the 
                number of full-time-equivalent residents in an 
                approved medical residency program, the 
                following rules shall apply with respect to 
                such individuals who are residents in the 
                program:
                          (i) For a cost reporting period 
                        beginning during fiscal year 1996, for 
                        each such individual the Secretary 
                        shall apply a weighting factor of .75.
                          (ii) For a cost reporting period 
                        beginning during fiscal year 1997, for 
                        each such individual the Secretary 
                        shall apply a weighting factor of .50.
                          (iii) For a cost reporting period 
                        beginning during fiscal year 1998, for 
                        each such individual the Secretary 
                        shall apply a weighting factor of .25.
                          (iv) For a cost reporting period 
                        beginning during fiscal year 1999 or 
                        any subsequent fiscal year, such 
                        individuals shall be excluded from the 
                        calculation of the number of full-time-
                        equivalent residents in an approved 
                        medical residency program under this 
                        paragraph.
          * * * * * * *
          (6) Limitation.--
                  (A) In general.--The authority to make 
                payments under this subsection applies only 
                with respect to cost reporting periods ending 
                on or before September 30, 1996, except as 
                provided in subparagraph (B).
                  (B) Rule regarding portion of last cost 
                reporting period.--In the case of a cost 
                reporting period that extends beyond September 
                30, 1996, payments under this subsection shall 
                be made with respect to such portion of the 
                period as has lapsed as of such date.
                  (C) Rule of construction.--This paragraph may 
                not be construed as authorizing any payment 
                under section 1861(v) with respect to graduate 
                medical education.
          * * * * * * *
  (j) Transfers to Teaching Hospital and Graduate Medical 
Education Trust Fund.--
          (1) Indirect costs of medical education.--
                  (A) In general.--From the Federal Hospital 
                Insurance Trust Fund, the Secretary shall, for 
                fiscal year 1997 and each subsequent fiscal 
                year, transfer to the Indirect-Costs Medical 
                Education Account (under section 2201) an 
                amount determined by the Secretary in 
                accordance with subparagraph (B).
                  (B) Determination of amounts.--The Secretary 
                shall make an estimate for the fiscal year 
                involved of the nationwide total of the amounts 
                that would have been paid under subsection 
                (d)(5)(B) to hospitals during the fiscal year 
                if such payments had not been terminated for 
                discharges occurring after September 30, 1996. 
                For purposes of subparagraph (A), the amount 
                determined under this subparagraph for the 
                fiscal year is the estimate made by the 
                Secretary under the preceding sentence.
          (2) Direct costs of medical education.--
                  (A) In general.--From the Federal Hospital 
                Insurance Trust Fund and the Federal 
                Supplementary Medical Insurance Trust Fund, the 
                Secretary shall, for fiscal year 1997 and each 
                subsequent fiscal year, transfer to the 
                Medicare Direct-Costs Medical Education Account 
                (under section 2201) the sum of--
                          (i) an amount determined by the 
                        Secretary in accordance with 
                        subparagraph (B); and
                          (ii) as applicable, an amount 
                        determined by the Secretary in 
                        accordance with subparagraph (C)(ii).
                  (B) Determination of amounts.--For each 
                hospital (other than a hospital that is a 
                member of a qualifying consortium referred to 
                in subparagraph (C)), the Secretary shall make 
                an estimate for the fiscal year involved of the 
                amount that would have been paid under 
                subsection (h) to the hospital during the 
                fiscal year if such payments had not been 
                terminated for cost reporting periods ending on 
                or before September 30, 1996. For purposes of 
                subparagraph (A)(i), the amount determined 
                under this subparagraph for the fiscal year is 
                the sum of all estimates made by the Secretary 
                under the preceding sentence.
                  (C) Estimates regarding qualifying 
                consortia.--If the Secretary elects to 
                authorize one or more qualifying consortia for 
                purposes of section 2233(a), the Secretary 
                shall carry out the following:
                          (i) The Secretary shall establish a 
                        methodology for making payments to 
                        qualifying consortia with respect to 
                        the reasonable direct costs of such 
                        consortia in carrying out programs of 
                        graduate medical education. The 
                        methodology shall be the methodology 
                        established in subsection (h), modified 
                        to the extent necessary to take into 
                        account the participation in such 
                        programs of entities other than 
                        hospitals.
                          (ii) For each qualifying consortium, 
                        the Secretary shall make an estimate 
                        for the fiscal year involved of the 
                        amount that would have been paid to the 
                        consortium during the fiscal year if, 
                        using the methodology under clause (i), 
                        payments had been made to the 
                        consortium for the fiscal year as 
                        reimbursements with respect to cost 
                        reporting periods. For purposes of 
                        subparagraph (A)(ii), the amount 
                        determined under this clause for the 
                        fiscal year is the sum of all estimates 
                        made by the Secretary under the 
                        preceding sentence.
                  (D) Allocation between funds.--In providing 
                for a transfer under subparagraph (A) for a 
                fiscal year, the Secretary shall provide for an 
                allocation of the amounts involved between part 
                A and part B (and the trust funds established 
                under the respective parts) as reasonably 
                reflects the proportion of direct graduate 
                medical education costs of hospitals associated 
                with the provision of services under each 
                respective part.
          (3) Applicability of certain amendments.--Amendments 
        made to subsection (d)(5)(B) and subsection (h) that 
        are effective on or after October 1, 1996, apply only 
        for purposes of estimates under paragraphs (1) and (2) 
        and for purposes of determining the amount of payments 
        under 2211. Such amendments do not require any 
        adjustment to amounts paid under subsection (d)(5)(B) 
        or (h) with respect to fiscal year 1996 or any prior 
        fiscal year.
          (4) Relationship to certain demonstration projects.--
        In the case of a State for which a demonstration 
        project under section 1814(b)(3) is in effect, the 
        Secretary, in making determinations of the rates of 
        increase under such section, shall include all amounts 
        transferred under this subsection. Such amounts shall 
        be so included to the same extent and in the same 
        manner as amounts determined under subsections 
        (d)(5)(B) and (h) were included in such determination 
        under the provisions of this title in effect on 
        September 30, 1996.
          * * * * * * *

 payment to skilled nursing facilities for routine service and certain 
                            ancillary costs

  Sec. 1888. (a) The Secretary, in determining the amount of 
the payments which may be made under this title with respect to 
routine service costs of extended care services (for any cost 
reporting period for which payment is made under this title to 
the skilled nursing facility for such services) shall not 
recognize as reasonable (in the efficient delivery of health 
services) per diem costs of such services to the extent that 
such per diem costs exceed the following per diem limits, 
except as otherwise provided in this section:
          (1) * * *
          * * * * * * *
In applying this subsection the Secretary shall make 
appropriate adjustments to the labor related portion of the 
costs based upon an appropriate wage index, and shall, for cost 
reporting periods beginning on or after October 1, 1992, on or 
after October 1, 1995, and every 2 years thereafter, provide 
for an update to the per diem cost limits described in this 
subsection (except that such updates may not take into account 
any changes in the routine service costs of skilled nursing 
facilities occurring during cost reporting periods which began 
during fiscal year 1994 or fiscal year 1995).
          * * * * * * *
  [(c) The Secretary] (c)(1) Subject to paragraph (2), the 
Secretary may make adjustments in the limits set forth in 
subsection (a) with respect to any skilled nursing facility to 
the extent the Secretary deems appropriate, based upon case mix 
or circumstances beyond the control of the facility. The 
Secretary shall publish the data and criteria to be used for 
purposes of this subsection on an annual basis[.], and may only 
make adjustments under this subsection with respect to a 
facility which applies for an adjustment during an annual 
application period established by the Secretary.
  (2) The Secretary may not make any adjustments under this 
subsection in the limits set forth in subsection (a) for a cost 
reporting period beginning during a fiscal year to the extent 
that the total amount of the additional payments made under 
this title as a result of such adjustments is greater than an 
amount equal to--
          (A) for cost reporting periods beginning during 
        fiscal year 1997, the total amount of the additional 
        payments made under this title as a result of 
        adjustments under this subsection for cost reporting 
        periods beginning during fiscal year 1996 increased by 
        the SNF market basket percentage increase (as defined 
        in section 1888A(e)(3)) for fiscal year 1997; and
          (B) for cost reporting periods beginning during a 
        subsequent fiscal year, the amount determined under 
        this paragraph for the previous fiscal year increased 
        by the SNF market basket percentage increase for such 
        subsequent fiscal year.
          * * * * * * *
  (e) For purposes of this section, the ``routine service 
costs'' of a skilled nursing facility are all costs which are 
attributable to nursing services, room and board, 
administrative costs, other overhead costs, and all other 
ancillary services (including supplies and equipment), 
excluding costs attributable to covered non-routine services 
subject to payment limits under section 1888A.


    incentives for cost-effective management of covered non-routine 
                 services of skilled nursing facilities


  Sec. 1888A. (a) Definitions.--For purposes of this section:
          (1) Covered non-routine services.--The term ``covered 
        non-routine services'' means post-hospital extended 
        care services consisting of any of the following:
                  (A) Physical or occupational therapy or 
                speech-language pathology services, or 
                respiratory therapy, including supplies and 
                support services incident to such services and 
                therapy.
                  (B) Prescription drugs.
                  (C) Complex medical equipment.
                  (D) Intravenous therapy and solutions 
                (including enteral and parenteral nutrients, 
                supplies, and equipment).
                  (E) Radiation therapy.
                  (F) Diagnostic services, including 
                laboratory, radiology (including computerized 
                tomography services and imaging services), and 
                pulmonary services.
          (2) SNF market basket percentage increase.--The term 
        ``SNF market basket percentage increase'' for a fiscal 
        year means a percentage equal to the percentage 
        increase in routine service cost limits for the year 
        under section 1888(a).
          (3) Stay.--The term ``stay'' means, with respect to 
        an individual who is a resident of a skilled nursing 
        facility, a period of continuous days during which the 
        facility provides extended care services for which 
        payment may be made under this title with respect to 
        the individual during the individual's spell of 
        illness.
  (b) New Payment Method for Covered Non-Routine Services.--
          (1) In general.--Subject to subsection (c), a skilled 
        nursing facility shall receive interim payments under 
        this title for covered non-routine services furnished 
        to an individual during a cost reporting period 
        beginning during a fiscal year (after fiscal year 1996) 
        in an amount equal to the reasonable cost of providing 
        such services in accordance with section 1861(v). The 
        Secretary may adjust such payments if the Secretary 
        determines (on the basis of such estimated information 
        as the Secretary considers appropriate) that payments 
        to the facility under this paragraph for a cost 
        reporting period would substantially exceed the cost 
        reporting period limit determined under subsection 
        (c)(1)(B).
          (2) Responsibility of skilled nursing facility to 
        manage billings.--
                  (A) Clarification relating to part a 
                billing.--In the case of a covered non-routine 
                service furnished to an individual who (at the 
                time the service is furnished) is a resident of 
                a skilled nursing facility who is entitled to 
                coverage under section 1812(a)(2) for such 
                service, the skilled nursing facility shall 
                submit a claim for payment under this title for 
                such service under part A (without regard to 
                whether or not the item or service was 
                furnished by the facility, by others under 
                arrangement with them made by the facility, 
                under any other contracting or consulting 
                arrangement, or otherwise).
                  (B) Part b billing.--In the case of a covered 
                non-routine service (other than a portable X-
                ray or portable electrocardiogram treated as a 
                physician's service for purposes of section 
                1848(j)(3)) furnished to an individual who (at 
                the time the service is furnished) is a 
                resident of a skilled nursing facility who is 
                not entitled to coverage under section 
                1812(a)(2) for such service but is entitled to 
                coverage under part B for such service, the 
                skilled nursing facility shall submit a claim 
                for payment under this title for such service 
                under part B (without regard to whether or not 
                the item or service was furnished by the 
                facility, by others under arrangement with them 
                made by the facility, under any other 
                contracting or consulting arrangement, or 
                otherwise).
                  (C) Maintaining records on services furnished 
                to residents.--Each skilled nursing facility 
                receiving payments for extended care services 
                under this title shall document on the 
                facility's cost report all covered non-routine 
                services furnished to all residents of the 
                facility to whom the facility provided extended 
                care services for which payment was made under 
                part A during a fiscal year (beginning with 
                fiscal year 1996) (without regard to whether or 
                not the services were furnished by the 
                facility, by others under arrangement with them 
                made by the facility, under any other 
                contracting or consulting arrangement, or 
                otherwise).
  (c) Reconciliation of Amounts.--
          (1) Limit based on per stay limit and number of 
        stays.--
                  (A) In general.--If a skilled nursing 
                facility has received aggregate payments under 
                subsection (b) for covered non-routine services 
                during a cost reporting period beginning during 
                a fiscal year in excess of an amount equal to 
                the cost reporting period limit determined 
                under subparagraph (B), the Secretary shall 
                reduce the payments made to the facility with 
                respect to such services for cost reporting 
                periods beginning during the following fiscal 
                year in an amount equal to such excess. The 
                Secretary shall reduce payments under this 
                subparagraph at such times and in such manner 
                during a fiscal year as the Secretary finds 
                necessary to meet the requirement of this 
                subparagraph.
                  (B) Cost reporting period limit.--The cost 
                reporting period limit determined under this 
                subparagraph is an amount equal to the product 
                of--
                          (i) the per stay limit applicable to 
                        the facility under subsection (d) for 
                        the period; and
                          (ii) the number of stays beginning 
                        during the period for which payment was 
                        made to the facility for such services.
                  (C) Prospective reduction in payments.--In 
                addition to the process for reducing payments 
                described in subparagraph (A), the Secretary 
                may reduce payments made to a facility under 
                this section during a cost reporting period if 
                the Secretary determines (on the basis of such 
                estimated information as the Secretary 
                considers appropriate) that payments to the 
                facility under this section for the period will 
                substantially exceed the cost reporting period 
                limit for the period determined under this 
                paragraph.
          (2) Incentive payments.--
                  (A) In general.--If a skilled nursing 
                facility has received aggregate payments under 
                subsection (b) for covered non-routine services 
                during a cost reporting period beginning during 
                a fiscal year in an amount that is less than 
                the amount determined under paragraph (1)(B), 
                the Secretary shall pay the skilled nursing 
                facility in the following fiscal year an 
                incentive payment equal to 50 percent of the 
                difference between such amounts, except that 
                the incentive payment may not exceed 5 percent 
                of the aggregate payments made to the facility 
                under subsection (b) for the previous fiscal 
                year (without regard to subparagraph (B)).
                  (B) Installment incentive payments.--The 
                Secretary may make installment payments during 
                a fiscal year to a skilled nursing facility 
                based on the estimated incentive payment that 
                the facility would be eligible to receive with 
                respect to such fiscal year.
  (d) Determination of Facility Per Stay Limit.--
          (1) Limit for fiscal year 1997.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the Secretary shall establish 
                separate per stay limits for hospital-based and 
                freestanding skilled nursing facilities for the 
                12-month cost reporting period beginning during 
                fiscal year 1997 that are equal to the sum of--
                          (i) 50 percent of the facility-
                        specific stay amount for the facility 
                        (as determined under subsection (e)) 
                        for the last 12-month cost reporting 
                        period ending on or before September 
                        30, 1994, increased (in a compounded 
                        manner) by the SNF market basket 
                        percentage increase for fiscal years 
                        1995 through 1997; and
                          (ii) 50 percent of the average of all 
                        facility-specific stay amounts for all 
                        hospital-based facilities or all 
                        freestanding facilities (whichever is 
                        applicable) during the cost reporting 
                        period described in clause (i), 
                        increased (in a compounded manner) by 
                        the SNF market basket percentage 
                        increase for fiscal years 1995 through 
                        1997.
                  (B) Facilities not having 1994 cost reporting 
                period.--In the case of a skilled nursing 
                facility for which payments were not made under 
                this title for covered non-routine services for 
                the last 12-month cost reporting period ending 
                on or before September 30, 1994, the per stay 
                limit for the 12-month cost reporting period 
                beginning during fiscal year 1997 shall be 
                twice the amount determined under subparagraph 
                (A)(ii).
          (2) Limit for subsequent fiscal years.--The per stay 
        limit for a skilled nursing facility for a 12-month 
        cost reporting period beginning during a fiscal year 
        after fiscal year 1997 is equal to the per stay limit 
        established under this subsection for the 12-month cost 
        reporting period beginning during the previous fiscal 
        year, increased by the SNF market basket percentage 
        increase for such subsequent fiscal year minus 2 
        percentage points.
          (3) Rebasing of amounts.--
                  (A) In general.--The Secretary shall provide 
                for an update to the facility-specific amounts 
                used to determine the per stay limits under 
                this subsection for cost reporting periods 
                beginning on or after October 1, 1999, and 
                every 2 years thereafter.
                  (B) Treatment of facilities not having 
                rebased cost reporting periods.--Paragraph 
                (1)(B) shall apply with respect to a skilled 
                nursing facility for which payments were not 
                made under this title for covered non-routine 
                services for the 12-month cost reporting period 
                used by the Secretary to update facility-
                specific amounts under subparagraph (A) in the 
                same manner as such paragraph applies with 
                respect to a facility for which payments were 
                not made under this title for covered non-
                routine services for the last 12-month cost 
                reporting period ending on or before September 
                30, 1994.
  (e) Determination of Facility-Specific Stay Amounts.--The 
``facility-specific stay amount'' for a skilled nursing 
facility for a cost reporting period is the sum of--
          (1) the average amount of payments made to the 
        facility under part A during the period which are 
        attributable to covered non-routine services furnished 
        during a stay; and
          (2) the Secretary's best estimate of the average 
        amount of payments made under part B during the period 
        for covered non-routine services furnished to all 
        residents of the facility to whom the facility provided 
        extended care services for which payment was made under 
        part A during the period (without regard to whether or 
        not the services were furnished by the facility, by 
        others under arrangement with them made by the 
        facility, under any other contracting or consulting 
        arrangement, or otherwise), as estimated by the 
        Secretary.
  (f) Intensive Nursing or Therapy Needs.--
          (1) In general.--In applying subsection (b) to 
        covered non-routine services furnished during a stay 
        beginning during a cost reporting period beginning 
        during a fiscal year to a resident of a skilled nursing 
        facility who requires intensive nursing or therapy 
        services, the per stay limit determined for the fiscal 
        year under the methodology for such resident shall be 
        the per stay limit developed under paragraph (2) 
        instead of the per stay limit determined under 
        subsection (d)(1)(A).
          (2) Per stay limit for intensive need residents.--Not 
        later than June 30, 1996, the Secretary, after 
        consultation with the Medicare Payment Review 
        Commission and skilled nursing facility experts, shall 
        develop and publish a methodology for determining on an 
        annual basis a per stay limit for residents of a 
        skilled nursing facility who require intensive nursing 
        or therapy services.
          (3) Budget neutrality.--The Secretary shall adjust 
        payments under subsection (b) in a manner that ensures 
        that total payments for covered non-routine services 
        under this section are not greater or less than total 
        payments for such services would have been but for the 
        application of paragraph (1).
  (g) Special Treatment for Medicare Low Volume Skilled Nursing 
Facilities.--This section shall not apply with respect to a 
skilled nursing facility for which payment is made for routine 
service costs during a cost reporting period on the basis of 
prospective payments under section 1888(d).
  (h) Exceptions and Adjustments to Limits.--
          (1) In general.--The Secretary may make exceptions 
        and adjustments to the cost reporting limits applicable 
        to a skilled nursing facility under subsection 
        (c)(1)(B) for a cost reporting period, except that the 
        total amount of any additional payments made under this 
        section for covered non-routine services during the 
        cost reporting period as a result of such exceptions 
        and adjustments may not exceed 5 percent of the 
        aggregate payments made to all skilled nursing 
        facilities for covered non-routine services during the 
        cost reporting period (determined without regard to 
        this paragraph).
          (2) Budget neutrality.--The Secretary shall adjust 
        payments under subsection (b) in a manner that ensures 
        that total payments for covered non-routine services 
        under this section are not greater or less than total 
        payments for such services would have been but for the 
        application of paragraph (1).
  (i) Special Rule for X-Ray Services.--Before furnishing a 
covered non-routine service consisting of an X-ray service for 
which payment may be made under part A or part B to a resident, 
a skilled nursing facility shall consider whether furnishing 
the service through a provider of portable X-ray service 
services would be appropriate, taking into account the cost 
effectiveness of the service and the convenience to the 
resident.
          * * * * * * *


              appropriations for combating fraud and abuse


  Sec. 1893. (a) Direct Spending for Payment Safeguard 
Activities.--
          (1) In general.--There are appropriated from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund for each 
        fiscal year such amounts as are necessary to carry out 
        the payment safeguard activities described in paragraph 
        (2), subject to paragraph (3).
          (2) Activities described.--The payment safeguard 
        activities described in this paragraph are as follows:
                  (A) Review of activities of providers of 
                services or other individuals and entities 
                furnishing items and services for which payment 
                may be made under this title (including skilled 
                nursing facilities and home health agencies), 
                including medical and utilization review and 
                fraud review.
                  (B) Audit of cost reports.
                  (C) Determinations as to whether payment 
                should not be, or should not have been, made 
                under this title by reason of section 1862(b), 
                and recovery of payments that should not have 
                been made.
                  (D) Education of providers of services, 
                beneficiaries, and other persons with respect 
                to payment integrity and benefit quality 
                assurance issues.
          (3) Amounts specified.--The amount appropriated under 
        paragraph (1) for a fiscal year is as follows:
                  (A) For fiscal year 1996, such amount shall 
                be not less than $430,000,000 and not more than 
                $440,000,000.
                  (B) For fiscal year 1997, such amount shall 
                be not less than $490,000,000 and not more than 
                $500,000,000.
                  (C) For fiscal year 1998, such amount shall 
                be not less than $550,000,000 and not more than 
                $560,000,000.
                  (D) For fiscal year 1999, such amount shall 
                be not less than $620,000,000 and not more than 
                $630,000,000.
                  (E) For fiscal year 2000, such amount shall 
                be not less than $670,000,000 and not more than 
                $680,000,000.
                  (F) For fiscal year 2001, such amount shall 
                be not less than $690,000,000 and not more than 
                $700,000,000.
                  (G) For fiscal year 2002, such amount shall 
                be not less than $710,000,000 and not more than 
                $720,000,000.
  (b) Direct Spending for Medicare-Related Activities of 
Inspector General.--
          (1) In general.--There are appropriated from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund to the 
        Inspector General of the Department of Health and Human 
        Services for each fiscal year such amounts as are 
        necessary to enable the Inspector General to carry out 
        activities relating to the medicare program (as 
        described in paragraph (2)), subject to paragraph (3).
          (2) Activities described.--The activities described 
        in this paragraph are as follows:
                  (A) Prosecuting medicare-related matters 
                through criminal, civil, and administrative 
                proceedings.
                  (B) Conducting investigations relating to the 
                medicare program.
                  (C) Performing financial and performance 
                audits of programs and operations relating to 
                the medicare program.
                  (D) Performing inspections and other 
                evaluations relating to the medicare program.
                  (E) Conducting provider and conumer education 
                activities regarding the requirements of this 
                title.
          (3) Amounts specified.--The amount appropriated under 
        paragraph (1) for a fiscal year is as follows:
                  (A) For fiscal year 1996, such amount shall 
                be $130,000,000.
                  (B) For fiscal year 1997, such amount shall 
                be $181,000,000.
                  (C) For fiscal year 1998, such amount shall 
                be $204,000,000.
                  (D) For each subsequent fiscal year, the 
                amount appropriated for the previous fiscal 
                year, increased by the percentage increase in 
                aggregate expenditures under this title for the 
                fiscal year involved over the previous fiscal 
                year.
  (c) Allocation of Payments Among Trust Funds.--The 
appropriations made under subsection (a) and subsection (b) 
shall be in an allocation as reasonably reflects the proportion 
of such expenditures associated with part A and part B.


                    payment for home health services


  Sec. 1894. (a) In General.--
          (1) Per visit payments.--Subject to subsection (c), 
        the Secretary shall make per visit payments beginning 
        with fiscal year 1997 to a home health agency in 
        accordance with this section for each type of home 
        health service described in paragraph (2) furnished to 
        an individual who at the time the service is furnished 
        is under a plan of care by the home health agency under 
        this title (without regard to whether or not the item 
        or service was furnished by the agency or by others 
        under arrangement with them made by the agency, or 
        otherwise).
          (2) Types of services.--The types of home health 
        services described in this paragraph are the following:
                  (A) Part-time or intermittent nursing care 
                provided by or under the supervision of a 
                registered professional nurse.
                  (B) Physical therapy.
                  (C) Occupational therapy.
                  (D) Speech-language pathology services.
                  (E) Medical social services under the 
                direction of a physician.
                  (F) To the extent permitted in regulations, 
                part-time or intermittent services of a home 
                health aide who has successfully completed a 
                training program approved by the Secretary.
  (b) Establishment of Per Visit Rate for Each Type of 
Services.--
          (1) In general.--The Secretary shall, subject to 
        paragraph (3), establish a per visit payment rate for a 
        home health agency in an area for each type of home 
        health service described in subsection (a)(2). Such 
        rate shall be equal to the national per visit payment 
        rate determined under paragraph (2) for each such type, 
        except that the labor-related portion of such rate 
        shall be adjusted by the area wage index applicable 
        under section 1886(d)(3)(E) for the area in which the 
        agency is located (as determined without regard to any 
        reclassification of the area under section 
        1886(d)(8)(B) or a decision of the Medicare Geographic 
        Classification Review Board or the Secretary under 
        section 1886(d)(10) for cost reporting periods 
        beginning after October 1, 1995).
          (2) National per visit payment rate.--The national 
        per visit payment rate for each type of service 
        described in subsection (a)(2)--
                  (A) for fiscal year 1997, is an amount equal 
                to the national average amount paid per visit 
                under this title to home health agencies for 
                such type of service during the most recent 12-
                month cost reporting period ending on or before 
                June 30, 1994, increased (in a compounded 
                manner) by the home health market basket 
                percentage increase for fiscal years 1995, 
                1996, and 1997; and
                  (B) for each subsequent fiscal year, is an 
                amount equal to the national per visit payment 
                rate in effect for the preceding fiscal year, 
                increased by the home health market basket 
                percentage increase for such subsequent fiscal 
                year minus 2 percentage points.
          (3) Rebasing of rates.--The Secretary shall provide 
        for an update to the national per visit payment rates 
        under this subsection for cost reporting periods 
        beginning not later than the first day of the fifth 
        fiscal year which begins after fiscal year 1997, and 
        not later than every 5 years thereafter, to reflect the 
        most recent available data.
          (4) Home health market basket percentage increase.--
        For purposes of this subsection, the term ``home health 
        market basket percentage increase'' means, with respect 
        to a fiscal year, a percentage (estimated by the 
        Secretary before the beginning of the fiscal year) 
        determined and applied with respect to the types of 
        home health services described in subsection (a)(2) in 
        the same manner as the market basket percentage 
        increase under section 1886(b)(3)(B)(iii) is determined 
        and applied to inpatient hospital services for the 
        fiscal year.
  (c) Per Episode Limit.--
          (1) Aggregate limit.--
                  (A) In general.--Except as provided in 
                paragraph (2), a home health agency may not 
                receive aggregate per visit payments under 
                subsection (a) for a fiscal year in excess of 
                an amount equal to the sum of the following 
                products determined for each case-mix category 
                for which the agency receives payments:
                          (i) The number of episodes of each 
                        case-mix category during the fiscal 
                        year; multiplied by
                          (ii) the per episode limit determined 
                        for such case-mix category for such 
                        fiscal year.
                  (B) Establishment of per episode limits.--
                          (i) In general.--The per episode 
                        limit for a fiscal year for any case-
                        mix category for the area in which a 
                        home health agency is located is equal 
                        to--
                                  (I) the mean number of visits 
                                for each type of home health 
                                service described in subsection 
                                (a)(2) furnished during an 
                                episode of such case-mix 
                                category in such area during 
                                fiscal year 1994, adjusted by 
                                the case-mix adjustment factor 
                                determined in clause (ii) for 
                                the fiscal year involved; 
                                multiplied by
                                  (II) the per visit payment 
                                rate established under 
                                subsection (b) for such type of 
                                home health service for the 
                                fiscal year for which the 
                                determination is being made.
                          (ii) Case mix adjustment factor.--For 
                        purposes of clause (i), the case-mix 
                        adjustment factor for a year is the 
                        factor determined by the Secretary to 
                        assure that aggregate payments for home 
                        health services under this section 
                        during the year will not exceed the 
                        payment for such services during the 
                        previous year as a result of changes in 
                        the number and type of home health 
                        visits within case-mix categories over 
                        the previous year.
                          (iii) Rebasing of per episode 
                        amounts.--Beginning with fiscal year 
                        1999 and every 2 years thereafter, the 
                        Secretary shall revise the mean number 
                        of home health visits determined under 
                        clause (i)(I) for each type of home 
                        health service visit described in 
                        subsection (a)(2) furnished during an 
                        episode in a case-mix category to 
                        reflect the most recently available 
                        data on the number of visits.
                          (iv) Determination of applicable 
                        area.--For purposes of determining per 
                        episode limits under this subparagraph, 
                        the area in which a home health agency 
                        is considered to be located shall be 
                        such area as the Secretary finds 
                        appropriate for purposes of this 
                        subparagraph.
                  (C) Case-mix category.--For purposes of this 
                paragraph, the term ``case-mix category'' means 
                each of the 18 case-mix categories established 
                under the Phase II Home Health Agency 
                Prospective Payment Demonstration Project 
                conducted by the Health Care Financing 
                Administration. The Secretary may develop an 
                alternate methodology for determining case-mix 
                categories.
                  (D) Episode.--
                          (i) In general.--For purposes of this 
                        paragraph, the term ``episode'' means 
                        the continuous 120-day period that--
                                  (I) begins on the date of an 
                                individual's first visit for a 
                                type of home health service 
                                described in subsection (a)(2) 
                                for a case-mix category, and
                                  (II) is immediately preceded 
                                by a 60-day period in which the 
                                individual did not receive 
                                visits for a type of home 
                                health service described in 
                                subsection (a)(2).
                          (ii) Treatment of episodes spanning 
                        cost reporting periods.--The Secretary 
                        shall provide for such rules as the 
                        Secretary considers appropriate 
                        regarding the treatment of episodes 
                        under this paragraph which begin during 
                        a cost reporting period and end in a 
                        subsequent cost reporting period.
                  (E) Exemptions and exceptions.--The Secretary 
                may provide for exemptions and exceptions to 
                the limits established under this paragraph for 
                a fiscal year as the Secretary deems 
                appropriate, to the extent such exemptions and 
                exceptions do not result in greater payments 
                under this section than the exemptions and 
                exceptions provided under section 
                1861(v)(1)(L)(ii) in fiscal year 1994, 
                increased by the home health market basket 
                percentage increase for the fiscal year 
                involved (as defined in subsection (b)(4)).
          (2) Reconciliation of amounts.--
                  (A) Overpayments to home health agencies.--
                Subject to subparagraph (B), if a home health 
                agency has received aggregate per visit 
                payments under subsection (a) for a fiscal year 
                in excess of the amount determined under 
                paragraph (1) with respect to such home health 
                agency for such fiscal year, the Secretary 
                shall reduce payments under this section to the 
                home health agency in the following fiscal year 
                in such manner as the Secretary considers 
                appropriate (including on an installment basis) 
                to recapture the amount of such excess.
                  (B) Exception for home health services 
                furnished over a period greater than 165 
                days.--
                          (i) In general.--For purposes of 
                        subparagraph (A), the amount of 
                        aggregate per visit payments determined 
                        under subsection (a) shall not include 
                        payments for home health visits 
                        furnished to an individual on or after 
                        a continuous period of more than 165 
                        days after an individual begins an 
                        episode described in subsection 
                        (c)(1)(D) (if such period is not 
                        interrupted by the beginning of a new 
                        episode).
                          (ii) Requirement of certification.--
                        Clause (i) shall not apply if the 
                        agency has not obtained a physician's 
                        certification with respect to the 
                        individual requiring such visits that 
                        includes a statement that the 
                        individual requires such continued 
                        visits, the reason for the need for 
                        such visits, and a description of such 
                        services furnished during such visits.
                  (C) Share of savings.--
                          (i) Bonus payments.--If a home health 
                        agency has received aggregate per visit 
                        payments under subsection (a) for a 
                        fiscal year in an amount less than the 
                        amount determined under paragraph (1) 
                        with respect to such home health agency 
                        for such fiscal year, the Secretary 
                        shall pay such home health agency a 
                        bonus payment equal to 50 percent of 
                        the difference between such amounts in 
                        the following fiscal year, except that 
                        the bonus payment may not exceed 5 
                        percent of the aggregate per visit 
                        payments made to the agency for the 
                        year.
                          (ii) Installment bonus payments.--The 
                        Secretary may make installment payments 
                        during a fiscal year to a home health 
                        agency based on the estimated bonus 
                        payment that the agency would be 
                        eligible to receive with respect to 
                        such fiscal year.
  (d) Medical Review Process.--The Secretary shall implement a 
medical review process (with a particular emphasis on fiscal 
years 1997 and 1998) for the system of payments described in 
this section that shall provide an assessment of the pattern of 
care furnished to individuals receiving home health services 
for which payments are made under this section to ensure that 
such individuals receive appropriate home health services. Such 
review process shall focus on low-cost cases described in 
subsection (e)(3) and cases described in subsection (c)(2)(B) 
and shall require recertification by intermediaries at 30, 60, 
90, 120, and 165 days into an episode described in subsection 
(c)(1)(D).
  (e) Adjustment of Payments to Avoid Circumvention of 
Limits.--
          (1) In general.--The Secretary shall provide for 
        appropriate adjustments to payments to home health 
        agencies under this section to ensure that agencies do 
        not circumvent the purpose of this section by--
                  (A) discharging patients to another home 
                health agency or similar provider;
                  (B) altering corporate structure or name to 
                avoid being subject to this section or for the 
                purpose of increasing payments under this 
                title; or
                  (C) undertaking other actions considered 
                unnecessary for effective patient care and 
                intended to achieve maximum payments under this 
                title.
          (2) Tracking of patients that switch home health 
        agencies during episode.--
                  (A) Development of system.--The Secretary 
                shall develop a system that tracks home health 
                patients that receive home health services 
                described in subsection (a)(2) from more than 1 
                home health agency during an episode described 
                in subsection (c)(1)(D).
                  (B) Adjustment of payments.--The Secretary 
                shall adjust payments under this section to 
                each home health agency that furnishes an 
                individual with a type of home health service 
                described in subsection (a)(2) to ensure that 
                aggregate payments on behalf of such individual 
                during such episode do not exceed the amount 
                that would be paid under this section if the 
                individual received such services from a single 
                home health agency.
          (3) Low-cost cases.--The Secretary shall develop a 
        system designed to adjust payments to a home health 
        agency for a fiscal year to eliminate any increase in 
        growth of the percentage of low-cost episodes for which 
        home health services are furnished by the agency over 
        such percentage determined for the agency for the 12-
        month cost reporting period ending on June 30, 1994. 
        The Secretary shall define a low-cost episode in a 
        manner that provides that a home health agency has an 
        incentive to be cost efficient in delivering home 
        health services and that the volume of such services 
        does not increase as a result of factors other than 
        patient needs.
  (f) Report by Medicare Payment Review Commission.--During the 
first 3 years in which payments are made under this section, 
the Medicare Payment Review Commission shall annually submit a 
report to Congress on the effectiveness of the payment 
methodology established under this section that shall include 
recommendations regarding the following:
          (1) Case-mix and volume increases.
          (2) Quality monitoring of home health agency 
        practices.
          (3) Whether a capitated payment for home care 
        patients receiving care during a continuous period 
        exceeding 165 days is warranted.
          (4) Whether public providers of service are 
        adequately reimbursed.
          (5) The adequacy of the exemptions and exceptions to 
        the limits provided under subsection (c)(1)(E).
          (6) The appropriateness of the methods provided under 
        this section to adjust the per episode limits and 
        annual payment updates to reflect changes in the mix of 
        services, number of visits, and assignment to case 
        categories to reflect changing patterns of home health 
        care.
          (7) The geographic areas used to determine the per 
        episode limits.


                       failsafe budget mechanism


  Sec. 1895. (a) Requirement of Payment Adjustments to Achieve 
Medicare Budget Targets.--If the Secretary determines under 
subsection (e)(3)(C) before a fiscal year (beginning with 
fiscal year 1998) that--
          (1) the fee-for-service expenditures (as defined in 
        subsection (f)) for a sector of medicare services (as 
        defined in subsection (b)) for the fiscal year, will 
        exceed
          (2) the allotment specified under subsection (c)(2) 
        for such fiscal year (taking into account any 
        adjustment in the allotment under subsection (h) for 
        that fiscal year),
then, notwithstanding any other provision of this title, there 
shall be an adjustment (consistent with subsection (d)) in 
applicable payment rates or payments for items and services 
included in the sector in the fiscal year so that such 
expenditures for the sector for the year will be reduced by 
133\1/3\ percent of the amount of such excess.
  (b) Sectors of Medicare Services Described.--
          (1) In general.--For purposes of this section, items 
        and services included under each of the following 
        subparagraphs shall be considered to be a separate 
        ``sector'' of medicare services:
                  (A) Inpatient hospital services.
                  (B) Home health services.
                  (C) Extended care services (for inpatients of 
                skilled nursing facilities).
                  (D) Hospice care.
                  (E) Physicians' services (including services 
                and supplies described in section 
                1861(s)(2)(A)) and services of other health 
                care professionals (including certified 
                registered nurse anesthetists, nurse 
                practitioners, physician assistants, and 
                clinical psychologists) for which separate 
                payment is made under this title.
                  (F) Outpatient hospital services and 
                ambulatory facility services.
                  (G) Durable medical equipment and supplies, 
                including prosthetic devices and orthotics.
                  (H) Diagnostic tests (including clinical 
                laboratory services and x-ray services).
                  (I) Other items and services.
          (2) Classification of items and services.--The 
        Secretary shall classify each type of items and 
        services covered and paid for separately under this 
        title into one of the sectors specified in paragraph 
        (1). After publication of such classification under 
        subsection (e)(1), the Secretary is not authorized to 
        make substantive changes in such classification.
  (c) Allotment.--
          (1) Allotments for each sector.--For purposes of this 
        section, subject to subsection (h)(1), the allotment 
        for a sector of medicare services for a fiscal year is 
        equal to the product of--
                  (A) the total allotment for the fiscal year 
                established under paragraph (2), and
                  (B) the allotment proportion (specified under 
                paragraph (3)) for the sector and fiscal year 
                involved.
          (2) Total allotment.--
                  (A) In general.--For purposes of this 
                section, the total allotment for a fiscal year 
                is equal to--
                          (i) the medicare benefit budget for 
                        the fiscal year (as specified under 
                        subparagraph (B)), reduced by
                          (ii) the amount of payments the 
                        Secretary estimates will be made in the 
                        fiscal year under the MedicarePlus 
                        program under part C.
                In making the estimate under clause (ii), the 
                Secretary shall take into account estimated 
                enrollment and demographic profile of 
                individuals electing MedicarePlus products.
                  (B) Medicare benefit budget.--For purposes of 
                this subsection, subject to subparagraph (C), 
                the ``medicare benefit budget''--
                          (i) for fiscal year 1997 is $203.1 
                        billion;
                          (ii) for fiscal year 1998 is $214.3 
                        billion;
                          (iii) for fiscal year 1999 is $227.2 
                        billion;
                          (iv) for fiscal year 2000 is $241.0 
                        billion;
                          (v) for fiscal year 2001 is $259.1 
                        billion;
                          (vi) for fiscal year 2002 is $280.0 
                        billion; and
                          (vii) for a subsequent fiscal year is 
                        equal to the medicare benefit budget 
                        under this subparagraph for the 
                        preceding fiscal year increased by the 
                        product of (I) 1.05, and (II) 1 plus 
                        the annual percentage increase in the 
                        average number of medicare 
                        beneficiaries from the previous fiscal 
                        year to the fiscal year involved.
          (3) Medicare allotment proportion defined.--
                  (A) In general.--For purposes of this section 
                and with respect to a sector of medicare 
                services for a fiscal year, the term ``medicare 
                allotment proportion'' means the ratio of--
                          (i) the baseline-projected medicare 
                        expenditures (as determined under 
                        subparagraph (B)) for the sector for 
                        the fiscal year, to
                          (ii) the sum of such baseline 
                        expenditures for all such sectors for 
                        the fiscal year.
                  (B) Baseline-projected medicare 
                expenditures.--In this paragraph, the 
                ``baseline-projected medicare expenditures'' 
                for a sector of medicare services--
                          (i) for fiscal year 1996 is equal to 
                        fee-for-service expenditures for such 
                        sector during fiscal year 1995, 
                        increased by the baseline annual growth 
                        rate for such sector of medicare 
                        services for fiscal year 1996 (as 
                        specified in table in subparagraph 
                        (C)); and
                          (ii) for a subsequent fiscal year is 
                        equal to the baseline-projected 
                        medicare expenditures under this 
                        subparagraph for the sector for the 
                        previous fiscal year increased by the 
                        baseline annual growth rate for such 
                        sector for the fiscal year involved (as 
                        specified in such table).
                  (C) Baseline annual growth rates.--The 
                following table specifies the baseline annual 
                growth rates for each of the sectors for 
                different fiscal years:
      
                                        

----------------------------------------------------------------------------------------------------------------
                                                         Baseline annual growth rates for fiscal year--         
                                               -----------------------------------------------------------------
          For the following sector--                                                                   2002 and 
                                                  1996     1997     1998     1999     2000     2001   thereafter
----------------------------------------------------------------------------------------------------------------
(A) Inpatient hospital services...............     5.7%     5.6%     6.0%     6.1%     5.7%     5.5%       5.2% 
(B) Home health services......................    17.2%    15.1%    11.7%     9.1%     8.4%     8.1%       7.9% 
(C) Extended care services....................    19.7%    12.3%     9.3%     8.7%     8.6%     8.4%       8.0% 
(D) Hospice care..............................    32.0%    24.0%    18.0%    15.0%    12.0%    10.0%       9.0% 
(E) Physicians' services......................    12.4%     9.7%     8.7%     9.0%     9.3%     9.6%      10.1% 
(F) Outpatient hospital services..............    14.7%    13.9%    14.5%    15.0%    14.1%    13.9%      14.0% 
(G) Durable medical equipment and supplies....    16.1%    15.5%    13.7%    12.4%    13.2%    13.9%      14.5% 
(H) Diagnostic tests..........................    13.1%    11.3%    11.0%    11.4%    11.4%    11.5%      11.9% 
(I) Other items and services..................    11.2%    10.2%    10.9%    12.0%    11.6%    11.6%      11.8% 
----------------------------------------------------------------------------------------------------------------

  (d) Manner of Payment Adjustment.--
          (1) In general.--Subject to the succeeding provisions 
        of this subsection, the Secretary shall apply a payment 
        reduction for a sector for a fiscal year in such a 
        manner as to--
                  (A) make a change in payment rates (to the 
                maximum extent practicable) at the time payment 
                rates are otherwise changed or subject to 
                change for that fiscal year; and
                  (B) provide for the full appropriate 
                adjustment so that the fee-for-service 
                expenditures for the sector for the fiscal year 
                will approximate (and not exceed) the allotment 
                for the sector for the fiscal year.
          (2) Taking into account volume and cash flow.--In 
        providing for an adjustment in payments under this 
        subsection for a sector for a fiscal year, the 
        Secretary shall take into account (in a manner 
        consistent with actuarial projections)--
                  (A) the impact of such an adjustment on the 
                volume or type of services provided in such 
                sector (and other sectors), and
                  (B) the fact that an adjustment may apply to 
                items and services furnished in a fiscal year 
                (payment for which may occur in a subsequent 
                fiscal year),
        in a manner that is consistent with assuring that total 
        fee-for-services expenditures for each sector for the 
        fiscal year will not exceed the allotment under 
        subsection (c)(1) for such sector for such year.
          (3) Proportionality of reductions within a sector.--
        In making adjustments under this subsection in payment 
        for items and services included within a sector of 
        medicare services for a fiscal year, the Secretary 
        shall provide for such an adjustment that results (to 
        the maximum extent feasible) in the same percentage 
        reductions in aggregate Federal payments under parts A 
        and B for the different classes of items and services 
        included within the sector for the fiscal year.
          (4) Application to payments made based on prospective 
        payment rates determined on a fiscal year basis.--
                  (A) In general.--In applying subsection (a) 
                with respect to items and services for which 
                payment is made under part A or B on the basis 
                of rates that are established on a prospective 
                basis for (and in advance of) a fiscal year, 
                the Secretary shall provide for the payment 
                adjustment under such subsection through an 
                appropriate reduction in such rates established 
                for items and services furnished (or, in the 
                case of payment for operating costs of 
                inpatient hospital services of subsection (d) 
                hospitals and subsection (d) Puerto Rico 
                hospitals (as defined in paragraphs (1)(B) and 
                (9)(A) of section 1886(d)), discharges 
                occurring) during such year.
                  (B) Description of application to specific 
                services.--The payment adjustment described in 
                subparagraph (A) applies for a fiscal year to 
                at least the following:
                          (i) Update factor for payment for 
                        operating costs of inpatient hospital 
                        services of pps hospitals.--To the 
                        computation of the applicable 
                        percentage increase specified in 
                        section 1886(d)(3)(B)(i) for discharges 
                        occurring in the fiscal year.
                          (ii) Home health services.--To the 
                        extent payment amounts for home health 
                        services are based on per visit payment 
                        rates under section 1894, to the 
                        computation of the increase in the 
                        national per visit payment rates 
                        established for the year under section 
                        1894(b)(2)(B).
                          (iii) Hospice care.--To the update of 
                        payment rates for hospice care under 
                        section 1814(i) for services furnished 
                        during the fiscal year.
                          (iv) Update factor for payment of 
                        operating costs of inpatient hospital 
                        services of pps-exempt hospitals.--To 
                        the computation of the target amount 
                        under section 1886(b)(3) for discharges 
                        occurring during the fiscal year.
                          (v) Covered non-routine services of 
                        skilled nursing facilities.--To the 
                        computation of the facility per stay 
                        limits for the year under section 
                        1888A(d) for covered non-routine 
                        services of a skilled nursing facility 
                        (as described in such section).
          (5) Application to payments made based on prospective 
        payment rates determined on a calendar year basis.--
                  (A) In general.--In applying subsection (a) 
                for a fiscal year with respect to items and 
                services for which payment is made under part A 
                or B on the basis of rates that are established 
                on a prospective basis for (and in advance of) 
                a calendar year, the Secretary shall provide 
                for the payment adjustment under such 
                subsection through an appropriate reduction in 
                such rates established for items and services 
                furnished at any time during such calendar year 
                as follows:
                          (i) For fiscal year 1997, the 
                        reduction shall be made for payment 
                        rates during calendar year 1997 in a 
                        manner so as to achieve the necessary 
                        payment reductions for such fiscal year 
                        for items and services furnished during 
                        the first 3 quarters of calendar year 
                        1997.
                          (ii) For a subsequent fiscal year, 
                        the reduction shall be made for payment 
                        rates during the calendar year in which 
                        the fiscal year ends in a manner so as 
                        to achieve the necessary payment 
                        reductions for such fiscal year for 
                        items and services furnished during the 
                        first 3 quarters of the calendar year, 
                        but also taking into account the 
                        payment reductions made in the first 
                        quarter of the fiscal year resulting 
                        from payment reductions made under this 
                        paragraph for the previous calendar 
                        year.
                          (iii) Payment rate reductions 
                        effected under this subparagraph for a 
                        calendar year and applicable to the 
                        last 3 quarters of the fiscal year in 
                        which the calendar year ends shall 
                        continue to apply during the first 
                        quarter of the succeeding fiscal year.
                  (B) Application in specific cases.--The 
                payment adjustment described in subparagraph 
                (A) applies for a fiscal year to at least the 
                following:
                          (i) Update in conversion factor for 
                        physicians' services.--To the 
                        computation of the conversion factor 
                        under subsection (d) of section 1848 
                        used in the fee schedule established 
                        under subsection (b) of such section, 
                        for items and services furnished during 
                        the calendar year in which the fiscal 
                        year ends.
                          (ii) Payment rates for other health 
                        care professionals.--To the computation 
                        of payments for professional services 
                        of certified registered nurse 
                        anesthetists under section 1833(l), 
                        nurse midwives, physician assistants, 
                        nurse practitioners and clinical nurse 
                        specialists under section 1833(r), 
                        clinical psychologists, clinical social 
                        workers, physical or occupational 
                        therapists, and any other health 
                        professionals for which payment rates 
                        are based (in whole or in part) on 
                        payments for physicians' services, for 
                        services furnished during the calendar 
                        year in which the fiscal year ends.
                          (iii) Update in lab fee schedule.--To 
                        the computation of the fee schedule 
                        amount under section 1833(h)(2) for 
                        clinical diagnostic laboratory services 
                        furnished during the calendar year in 
                        which the fiscal year ends.
                          (iv) Update in reasonable charges for 
                        vaccines.--To the computation of the 
                        reasonable charge for vaccines 
                        described in section 1861(s)(10) for 
                        vaccines furnished during the calendar 
                        year in which the fiscal year ends.
                          (v) Durable medical equipment-related 
                        items.--To the computation of the 
                        payment basis under section 
                        1834(a)(1)(B) for covered items 
                        described in section 1834(a)(13), for 
                        items furnished during the calendar 
                        year in which the fiscal year ends.
                          (vi) Radiologist services.--To the 
                        computation of conversion factors for 
                        radiologist services under section 
                        1834(b), for services furnished during 
                        the calendar year in which the fiscal 
                        year ends.
                          (vii) Screening mammography.--To the 
                        computation of payment rates for 
                        screening mammography under section 
                        1834(c)(1)(C)(ii), for screening 
                        mammography performed during the 
                        calendar year in which the fiscal year 
                        ends.
                          (viii) Prosthetics and orthotics.--To 
                        the computation of the amount to be 
                        recognized under section 1834(h) for 
                        payment for prosthetic devices and 
                        orthotics and prosthetics, for items 
                        furnished during the calendar year in 
                        which the fiscal year ends.
                          (ix) Surgical dressings.--To the 
                        computation of the payment amount 
                        referred to in section 1834(i)(1)(B) 
                        for surgical dressings, for items 
                        furnished during the calendar year in 
                        which the fiscal year ends.
                          (x) Parenteral and enteral 
                        nutrition.--To the computation of 
                        reasonable charge screens for payment 
                        for parenteral and enteral nutrition 
                        under section 1834(h), for nutrients 
                        furnished during the calendar year in 
                        which the fiscal year ends.
                          (xi) Ambulance services.--To the 
                        computation of limits on reasonable 
                        charges for ambulance services, for 
                        services furnished during the calendar 
                        year in which the fiscal year ends.
          (6) Application to payments made based on costs 
        during a cost reporting period.--
                  (A) In general.--In applying subsection (a) 
                for a fiscal year with respect to items and 
                services for which payment is made under part A 
                or B on the basis of costs incurred for items 
                and services in a cost reporting period, the 
                Secretary shall provide for the payment 
                adjustment under such subsection for a fiscal 
                year through a appropriate proportional 
                reduction in the payment for costs for such 
                items and services incurred at any time during 
                each cost reporting period any part of which 
                occurs during the fiscal year involved, but 
                only (for each such cost reporting period) in 
                the same proportion as the fraction of the cost 
                reporting period that occurs during the fiscal 
                year involved.
                  (B) Application in specific cases.--The 
                payment adjustment described in subparagraph 
                (A) applies for a fiscal year to at least the 
                following:
                          (i) Capital-related costs of hospital 
                        services.--To the computation of 
                        payment amounts for inpatient and 
                        outpatient hospital services under 
                        sections 1886(g) and 1861(v) for 
                        portions of cost reporting periods 
                        occurring during the fiscal year.
                          (ii) Operating costs for pps-exempt 
                        hospitals.--To the computation of 
                        payment amounts under section 1886(b) 
                        for operating costs of inpatient 
                        hospital services of PPS-exempt 
                        hospitals for portions of cost 
                        reporting periods occurring during the 
                        fiscal year.
                          (iii) Direct graduate medical 
                        education.--To the computation of 
                        payment amounts under section 1886(h) 
                        for reasonable costs of direct graduate 
                        medical education costs for portions of 
                        cost reporting periods occurring during 
                        the fiscal year.
                          (iv) Inpatient rural primary care 
                        hospital services.--To the computation 
                        of payment amounts under section 
                        1814(j) for inpatient rural primary 
                        care hospital services for portions of 
                        cost reporting periods occurring during 
                        the fiscal year.
                          (v) Extended care services of a 
                        skilled nursing facility.--To the 
                        computation of payment amounts under 
                        section 1861(v) for post-hospital 
                        extended care services of a skilled 
                        nursing facility (other than covered 
                        non-routine services subject to section 
                        1888A) for portions of cost reporting 
                        periods occurring during the fiscal 
                        year.
                          (vi) Reasonable cost contracts.--To 
                        the computation of payment amounts 
                        under section 1833(a)(1)(A) for 
                        organizations for portions of cost 
                        reporting periods occurring during the 
                        fiscal year.
                          (vii) Home health services.--Subject 
                        to paragraph (4)(B)(ii), for payment 
                        amounts for home health services, for 
                        portions of cost reporting periods 
                        occurring during such fiscal year.
          (7) Other.--In applying subsection (a) for a fiscal 
        year with respect to items and services for which 
        payment is made under part A or B on a basis not 
        described in a previous paragraph of this subsection, 
        the Secretary shall provide for the payment adjustment 
        under such subsection through an appropriate 
        proportional reduction in the payments (or payment 
        bases for items and services furnished) during the 
        fiscal year.
          (8) Adjustment of payment limits.--The Secretary 
        shall provide for such proportional adjustment in any 
        limits on payment established under part A or B for 
        payment for items and services within a sector as may 
        be appropriate based on (and in order to properly carry 
        out) the adjustment on the amount of payment under this 
        subsection in the sector.
          (9) References to payment rates.--Except as the 
        Secretary may provide, any reference in this title 
        (other than this section) to a payment rate is deemed a 
        reference to such a rate as adjusted under this 
        subsection.
  (e) Publication of Determinations; Judicial Review.--
          (1) One-time publication of sectors and general 
        payment adjustment methodology.--Not later than October 
        1, 1996, the Secretary shall publish in the Federal 
        Register the classification of medicare items and 
        services into the sectors of medicare services under 
        subsection (b) and the general methodology to be used 
        in applying payment adjustments to the different 
        classes of items and services within the sectors.
          (2) Inclusion of information in president's budget.--
                  (A) In general.--With respect to fiscal years 
                beginning with fiscal year 1999, the President 
                shall include in the budget submitted under 
                section 1105 of title 31, United States Code, 
                information on--
                          (i) the fee-for-service expenditures, 
                        within each sector, for the second 
                        previous fiscal year, and how such 
                        expenditures compare to the adjusted 
                        sector allotment for that sector for 
                        that fiscal year; and
                          (ii) actual annual growth rates for 
                        fee-for-service expenditures in the 
                        different sectors in the second 
                        previous fiscal year.
                  (B) Recommendations regarding growth 
                factors.--The President may include in such 
                budget for a fiscal year (beginning with fiscal 
                year 1998) recommendations regarding 
                percentages that should be applied (for one or 
                more fiscal years beginning with that fiscal 
                year) instead of the baseline annual growth 
                rates under subsection (c)(3)(C). Such 
                recommendations shall take into account 
                medically appropriate practice patterns.
          (3) Determinations concerning payment adjustments.--
                  (A) Recommendations of commission.--By not 
                later than March 1 of each year (beginning with 
                1997), the Medicare Payment Review Commission 
                shall submit to the Secretary and the Congress 
                a report that analyzes the previous operation 
                (if any) of this section and that includes 
                recommendations concerning the manner in which 
                this section should be applied for the 
                following fiscal year.
                  (B) Preliminary notice by secretary.--Not 
                later than May 15 preceding the beginning of 
                each fiscal year (beginning with fiscal year 
                1998), the Secretary shall publish in the 
                Federal Register a notice containing the 
                Secretary's preliminary determination, for each 
                sector of medicare services, concerning the 
                following:
                          (i) The projected allotment under 
                        subsection (c) for such sector for the 
                        fiscal year.
                          (ii) Whether there will be a payment 
                        adjustment for items and services 
                        included in such sector for the fiscal 
                        year under subsection (a).
                          (iii) If there will be such an 
                        adjustment, the size of such adjustment 
                        and the methodology to be used in 
                        making such a payment adjustment for 
                        classes of items and services included 
                        in such sector.
                          (iv) Beginning with fiscal year 1999, 
                        the fee-for-service expenditures for 
                        such sector for the second preceding 
                        fiscal year.
                Such notice shall include an explanation of the 
                basis for such determination. Determinations 
                under this subparagraph and subparagraph (C) 
                shall be based on the best data available at 
                the time of such determinations.
                  (C) Final determination.--Not later than 
                September 1 preceding the beginning of each 
                fiscal year (beginning with fiscal year 1998), 
                the Secretary shall publish in the Federal 
                Register a final determination, for each sector 
                of medicare services, concerning the matters 
                described in subparagraph (B) and an 
                explanation of the reasons for any differences 
                between such determination and the preliminary 
                determination for such fiscal year published 
                under subparagraph (B).
          (4) Limitation on administrative or judicial 
        review.--There shall be no administrative or judicial 
        review under section 1878 or otherwise of--
                  (A) the classification of items and services 
                among the sectors of medicare services under 
                subsection (b),
                  (B) the determination of the amounts of 
                allotments for the different sectors of 
                medicare services under subsection (c),
                  (C) the determination of the amount (or 
                method of application) of any payment 
                adjustment under subsection (d), or
                  (D) any adjustment in an allotment effected 
                under subsection (h).
  (f) Fee-for-Service Expenditures Defined.--In this section, 
the term ``fee-for-service expenditures'', for items and 
services within a sector of medicare services in a fiscal year, 
means amounts payable for such items and services which are 
furnished during the fiscal year, and--
          (1) includes types of expenses otherwise reimbursable 
        under parts A and B (including administrative costs 
        incurred by organizations described in sections 1816 
        and 1842) with respect to such items and services, and
          (2) does not include amounts paid under part C.
  (g) Expedited Process for Adjustment of Sector Growth 
Rates.--
          (1) Optional inclusion of legislative proposal.--The 
        President may include in recommendations under 
        subsection (e)(2)(B) submitted with respect to a fiscal 
        year a specific legislative proposal that provides only 
        for the substitution of percentages specified in the 
        proposal for one or more of the baseline annual growth 
        rates (specified in the table in subsection (c)(3)(C) 
        or in a previous legislative proposal under this 
        subsection) for that fiscal year or any subsequent 
        fiscal year.
          (2) Congressional consideration.--
                  (A) In general.--The percentages contained in 
                a legislative proposal submitted under 
                paragraph (1) shall apply under this section if 
                a joint resolution (described in subparagraph 
                (B)) approving such proposal is enacted, in 
                accordance with the provisions of subparagraph 
                (C), before the end of the 60-day period 
                beginning on the date on which such proposal 
                was submitted. For purposes of applying the 
                preceding sentence and subparagraphs (B) and 
                (C), the days on which either House of Congress 
                is not in session because of an adjournment of 
                more than three days to a day certain shall be 
                excluded in the computation of a period.
                  (B) Joint resolution of approval.--A joint 
                resolution described in this subparagraph means 
                only a joint resolution which is introduced 
                within the 10-day period beginning on the date 
                on which the President submits a proposal under 
                paragraph (1) and--
                          (i) which does not have a preamble;
                          (ii) the matter after the resolving 
                        clause of which is as follows: ``That 
                        Congress approves the proposal of the 
                        President providing for substitution of 
                        percentages for certain baseline annual 
                        growth rates under section 1895 of the 
                        Social Security Act, as submitted by 
                        the President on ______________.'', the 
                        blank space being filled in with the 
                        appropriate date; and
                          (iii) the title of which is as 
                        follows: ``Joint resolution approving 
                        Presidential proposal to substitute 
                        certain specified percentages for 
                        baseline annual growth rates under 
                        section 1895 of the Social Security 
                        Act, as submitted by the President on 
                        ______________.'', the blank space 
                        being filled in with the appropriate 
                        date.
                  (C) Procedures for consideration of 
                resolution of approval.--Subject to 
                subparagraph (D), the provisions of section 
                2908 (other than subsection (a)) of the Defense 
                Base Closure and Realignment Act of 1990 shall 
                apply to the consideration of a joint 
                resolution described in subparagraph (B) in the 
                same manner as such provisions apply to a joint 
                resolution described in section 2908(a) of such 
                Act.
                  (D) Special rules.--For purposes of applying 
                subparagraph (C) with respect to such 
                provisions--
                          (i) any reference to the Committee on 
                        Armed Services of the House of 
                        Representatives shall be deemed a 
                        reference to an appropriate Committee 
                        of the House of Representatives 
                        (specified by the Speaker of the House 
                        of Representatives at the time of 
                        submission of a legislative proposal 
                        under paragraph (1)) and any reference 
                        to the Committee on Armed Services of 
                        the Senate shall be deemed a reference 
                        to the Committee on Finance of the 
                        Senate; and
                          (ii) any reference to the date on 
                        which the President transmits a report 
                        shall be deemed a reference to the date 
                        on which the President submits the 
                        legislative proposal under paragraph 
                        (1).
  (h) Look-Back Adjustment in Allotments to Reflect Actual 
Expenditures.--
          (1) In general.--If the Secretary determines under 
        subsection (e)(3)(B) with respect to a particular 
        fiscal year (beginning with fiscal year 1999) that the 
        fee-for-service expenditures for a sector of medicare 
        services for the second preceding fiscal year--
                  (A) exceeded the adjusted allotment for such 
                sector for such year (as defined in paragraph 
                (2)), then the allotment for the sector for the 
                particular fiscal year shall be reduced by 
                133\1/3\ percent of the amount of such excess, 
                or
                  (B) was less than the adjusted allotment for 
                such sector for such year, then the allotment 
                for the sector for the particular fiscal year 
                shall be increased by the amount of such 
                deficit.
          (2) Adjusted allotment.--The adjusted allotment under 
        this paragraph for a sector for a fiscal year is--
                  (A) the amount that would be computed as the 
                allotment under subsection (c) for the sector 
                for the fiscal year if the actual amount of 
                payments made in the fiscal year under the 
                MedicarePlus program under part C in the fiscal 
                year were substituted for the amount described 
                in subsection (c)(2)(A)(ii) for that fiscal 
                year,
                  (B) adjusted to take into account the amount 
                of any adjustment under paragraph (1) for that 
                fiscal year (based on expenditures in the 
                second previous fiscal year).
  (i) Prospective Application of Certain National Coverage 
Determinations.--In the case of a national coverage 
determination that the Secretary projects will result in 
significant additional expenditures under this title (taking 
into account any substitution for existing procedures or 
technologies), such determination shall not become effective 
before the beginning of the fiscal year that begins after the 
date of such determination and shall apply to contracts under 
part C entered into (or renewed) after the date of such 
determination.
          * * * * * * *

      TITLE XIX--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

          * * * * * * *

                   STATE PLANS FOR MEDICAL ASSISTANCE

  Sec. 1902. (a) A State plan for medical assistance must--
          (1) provide that it shall be in effect in all 
        political subdivisions of the State, and, if 
        administered by them, be mandatory upon them;
          * * * * * * *
          (25) provide--
                  (A) that the State or local agency 
                administering such plan will take all 
                reasonable measures to ascertain the legal 
                liability of third parties (including health 
                insurers, group health plans (as defined in 
                section 607(1) of the Employee Retirement 
                Income Security Act of 1974), service benefit 
                plans, and health maintenance organizations) to 
                pay for care and services available under the 
                plan, including--
                          (i) the collection of sufficient 
                        information ([including the use of 
                        information collected by the Medicare 
                        and Medicaid Coverage Data Bank under 
                        section 1144 and any additional 
                        measures] as specified by the Secretary 
                        in regulations) to enable the State to 
                        pursue claims against such third 
                        parties, with such information being 
                        collected at the time of any 
                        determination or redetermination of 
                        eligibility for medical assistance, and
          * * * * * * *

TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST FUND

                     Part A--Establishment of Fund

SEC. 2201. ESTABLISHMENT OF FUND.

  (a) In General.--There is established in the Treasury of the 
United States a fund to be known as the Teaching Hospital and 
Graduate Medical Education Trust Fund (in this title referred 
to as the ``Fund''), consisting of amounts appropriated to the 
Fund in subsection (d) and subsection (e)(3), amounts 
transferred to the Fund under section 1886(j), and such gifts 
and bequests as may be deposited in the Fund pursuant to 
subsection (f). Amounts in the Fund are available until 
expended.
  (b) Expenditures From Fund.--Amounts in the Fund are 
available to the Secretary for making payments under section 
2211.
  (c) Accounts in Fund.--There are established within the Fund 
the following accounts:
          (1) The Indirect-Costs Medical Education Account.
          (2) The Medicare Direct-Costs Medical Education 
        Account.
          (3) The General Direct-Costs Medical Education 
        Account.
  (d) General Transfers to Fund.--
          (1) In general.--For fiscal year 1997 and each 
        subsequent fiscal year, there are appropriated to the 
        Fund (effective on the applicable date under paragraph 
        (2)), out of any money in the Treasury not otherwise 
        appropriated, the following amounts (as applicable to 
        the fiscal year involved):
                  (A) For fiscal year 1997, $400,000,000.
                  (B) For fiscal year 1998, $600,000,000.
                  (C) For fiscal year 1999, $2,000,000,000.
                  (D) For fiscal year 2000, $3,000,000,000.
                  (E) For fiscal year 2001, $4,000,000,000.
                  (F) For fiscal year 2002, $5,800,000,000.
                  (G) For fiscal year 2003 and each subsequent 
                fiscal year, the greater of the amount 
                appropriated for the preceding fiscal year or 
                an amount equal to the product of--
                          (i) the amount appropriated for the 
                        preceding fiscal year; and
                          (ii) 1 plus the percentage increase 
                        in the nominal gross domestic product 
                        for the one-year period ending upon 
                        July 1 of such preceding fiscal year.
          (2) Effective date for annual appropriation.--For 
        purposes of paragraph (1) (and for purposes of section 
        2221(a)(1), and subsections (b)(1)(A) and (c)(1)(A) of 
        section 2231)), the applicable date for a fiscal year 
        is the first day of the fiscal year, exclusive of 
        Saturdays, Sundays, and Federal holidays.
          (3) Allocation among certain accounts.--Of the amount 
        appropriated in paragraph (1) for a fiscal year--
                  (A) there shall be allocated to the Indirect-
                Costs Medical Education Account the percentage 
                determined under paragraph (4)(B); and
                  (B) there shall be allocated to the General 
                Direct-Costs Medical Education Account the 
                percentage determined under paragraph (4)(C).
          (4) Determination of percentages.--The Secretary of 
        Health and Human Services, acting through the 
        Administrator of the Health Care Financing 
        Administration, shall determine the following:
                  (A) The total amount of payments that were 
                made under subsections (d)(5)(B) and (h) of 
                section 1886 for fiscal year 1994.
                  (B) The percentage of such total that was 
                constituted by payments under subsection 
                (d)(5)(B) of such section.
                  (C) The percentage of such total that was 
                constituted by payments under subsection (h) of 
                such section.
  (e) Investment.--
          (1) In general.--The Secretary of the Treasury shall 
        invest such amounts of the Fund as such Secretary 
        determines are not required to meet current withdrawals 
        from the Fund. Such investments may be made only in 
        interest-bearing obligations of the United States. For 
        such purpose, such obligations may be acquired on 
        original issue at the issue price, or by purchase of 
        outstanding obligations at the market price.
          (2) Sale of obligations.--Any obligation acquired by 
        the Fund may be sold by the Secretary of the Treasury 
        at the market price.
          (3) Availability of income.--Any interest derived 
        from obligations acquired by the Fund, and proceeds 
        from any sale or redemption of such obligations, are 
        hereby appropriated to the Fund.
  (f) Acceptance of Gifts and Bequests.--The Fund may accept on 
behalf of the United States money gifts and bequests made 
unconditionally to the Fund for the benefit of the Fund or any 
activity financed through the Fund.

                 Part B--Payments to Teaching Hospitals

                   Subpart 1--Requirement of Payments

SEC. 2211. FORMULA PAYMENTS TO TEACHING HOSPITALS.

  (a) In General.--Subject to subsection (d), in the case of 
each teaching hospital that in accordance with subsection (b) 
submits to the Secretary a payment document for fiscal year 
1997 or any subsequent fiscal year, the Secretary shall make 
payments for the year to the teaching hospital for the costs of 
operating approved medical residency training programs. Such 
payments shall be made from the Fund, and the total of the 
payments to the hospital for the fiscal year shall equal the 
sum of the following:
          (1) An amount determined under section 2221 (relating 
        to the indirect costs of graduate medical education).
          (2) An amount determined under section 2231 (relating 
        to the direct costs of graduate medical education).
  (b) Payment Document.--For purposes of subsection (a), a 
payment document is a document containing such information as 
may be necessary for the Secretary to make payments under such 
subsection to a teaching hospital for a fiscal year. The 
document is submitted in accordance with this subsection if the 
document is submitted not later than the date specified by the 
Secretary, and the document is in such form and is made in such 
manner as the Secretary may require. The Secretary may require 
that information under this subsection be submitted to the 
Secretary in periodic reports.
  (c) Administrator of Programs.--This part, and the subsequent 
parts of this title, shall be carried out by the Secretary 
acting through the Administrator of the Health Care Financing 
Administration.
  (d) Special Rules.--
          (1) Authority regarding payments to consortia of 
        providers.--In the case of payments under subsection 
        (a) that are determined under section 2231:
                  (A) The requirement under such subsection to 
                make the payments to teaching hospitals is 
                subject to the authority of the Secretary under 
                section 2233(a) to make payments to qualifying 
                consortia.
                  (B) If the Secretary authorizes such a 
                consortium for purposes of section 2233(a), 
                subsections (a) and (b) of this section apply 
                to the consortium to the same extent and in the 
                same manner as the subsections apply to 
                teaching hospitals.
          (2) Certain hospitals.--Paragraph (1) of subsection 
        (a) is subject to sections 2222 and 2223 of subpart 2. 
        Paragraph (2) of subsection (a) is subject to sections 
        2232 through 2234 of subpart 3.
  (e) Approved Medical Residency Training Program.--For 
purposes of this title, the term ``approved medical residency 
training program'' has the meaning given such term in section 
1886(h)(5)(A).

   Subpart 2--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

SEC. 2221. DETERMINATION OF AMOUNT RELATING TO INDIRECT COSTS.

  (a) In General.--For purposes of section 2211(a)(1), the 
amount determined under this section for a teaching hospital 
for a fiscal year is the product of--
          (1) the amount in the Indirect-Costs Medical 
        Education Account on the applicable date under section 
        2201(d) (once the appropriation under such section is 
        made); and
          (2) the percentage determined for the hospital under 
        subsection (b).
  (b) Hospital-Specific Percentage.--
          (1) In general.--For purposes of subsection (a)(2), 
        the percentage determined under this subsection for a 
        teaching hospital is the mean average of the respective 
        percentages determined under paragraph (3) for each 
        fiscal year of the applicable period (as defined in 
        paragraph (2)), adjusted by the Secretary (upward or 
        downward, as the case may be) on a pro rata basis to 
        the extent necessary to ensure that the sum of the 
        percentages determined under this paragraph for all 
        teaching hospitals is equal to 100 percent. The 
        preceding sentence is subject to sections 2222 and 
        2223.
          (2) Applicable period regarding relevant data; fiscal 
        years 1992 through 1994.--For purposes of this part, 
        the term ``applicable period'' means the period 
        beginning on the first day of fiscal year 1992 and 
        continuing through the end of fiscal year 1994.
          (3) Respective determinations for fiscal years of 
        applicable period.--For purposes of paragraph (1), the 
        percentage determined under this paragraph for a 
        teaching hospital for a fiscal year of the applicable 
        period is the percentage constituted by the ratio of--
                  (A) the total amount of payments received by 
                the hospital under section 1886(d)(5)(B) for 
                discharges occurring during the fiscal year 
                involved; to
                  (B) the sum of the respective amounts 
                determined under subparagraph (A) for the 
                fiscal year for all teaching hospitals.
  (c) Availability of Data.--If a teaching hospital received 
the payments specified in subsection (b)(3)(A) during the 
applicable period but a complete set of the relevant data is 
not available to the Secretary for purposes of determining an 
amount under such subsection for the fiscal year involved, the 
Secretary shall for purposes of such subsection make an 
estimate on the basis of such data as are available to the 
Secretary for the applicable period.

SEC. 2222. INDIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
                    HOSPITAL-SPECIFIC PERCENTAGE.

  (a) Special Rule Regarding Fiscal Years 1995 and 1996.--
          (1) In general.--In the case of a teaching hospital 
        whose first payments under 1886(d)(5)(B) were for 
        discharges occurring in fiscal year 1995 or in fiscal 
        year 1996 (referred to in this subsection individually 
        as a ``first payment year''), the percentage determined 
        under paragraph (2) for the hospital is deemed to be 
        the percentage applicable under section 2221(b) to the 
        hospital, except that the percentage under paragraph 
        (2) shall be adjusted in accordance with section 
        2221(b)(1) to the extent determined by the Secretary to 
        be necessary with respect to a sum that equals 100 
        percent.
          (2) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this 
        paragraph for a teaching hospital is the percentage 
        constituted by the ratio of the amount determined under 
        subparagraph (A) to the amount determined under 
        subparagraph (B), as follows:
                  (A)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the total 
                amount of payments received by the hospital 
                under section 1886(d)(5)(B) for discharges 
                occurring during fiscal year 1995.
                  (ii) If the first payment year for the 
                hospital is fiscal year 1996, the amount 
                determined under this subparagraph is an amount 
                equal to an estimate by the Secretary of the 
                total amount of payments that would have been 
                paid to the hospital under section 
                1886(d)(5)(B) for discharges occurring during 
                fiscal year 1995 if such section, as in effect 
                for fiscal year 1996, had applied to the 
                hospital for discharges occurring during fiscal 
                year 1995.
                  (B)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the 
                aggregate total of the payments received by 
                teaching hospitals under section 1886(d)(5)(B) 
                for discharges occurring during fiscal year 
                1995.
                  (ii) If the first payment year for the 
                hospital is fiscal year 1996--
                          (I) the Secretary shall make an 
                        estimate in accordance with 
                        subparagraph (A)(ii) for all teaching 
                        hospitals; and
                          (II) the amount determined under this 
                        subparagraph is the sum of the 
                        estimates made by the Secretary under 
                        subclause (I).
  (b) New Teaching Hospitals.--
          (1) In general.--In the case of a teaching hospital 
        that did not receive payments under section 
        1886(d)(5)(B) for any of the fiscal years 1992 through 
        1996, the percentage determined under paragraph (3) for 
        the hospital is deemed to be the percentage applicable 
        under section 2221(b) to the hospital, except that the 
        percentage under paragraph (3) shall be adjusted in 
        accordance with section 2221(b)(1) to the extent 
        determined by the Secretary to be necessary with 
        respect to a sum that equals 100 percent. This 
        subsection does not apply to a teaching hospital 
        described in the preceding sentence if the hospital is 
        in a State for which a demonstration project under 
        section 1814(b)(3) is in effect.
          (2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be 
        made for the most recent fiscal year for which the 
        Secretary has sufficient data to make the determination 
        (referred to in this subsection as the ``designated 
        fiscal year'').
          (3) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this 
        paragraph for the teaching hospital involved is the 
        percentage constituted by the ratio of the amount 
        determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                  (A) The amount determined under this 
                subparagraph is an amount equal to an estimate 
                by the Secretary of the total amount of 
                payments that would have been paid to the 
                hospital under section 1886(d)(5)(B) for the 
                designated fiscal year if such section, as in 
                effect for the first fiscal year for which 
                payments pursuant to this subsection are to be 
                made to the hospital, had applied to the 
                hospital for the designated fiscal year.
                  (B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all 
                teaching hospitals. The amount determined under 
                this subparagraph is the sum of the estimates 
                made by the Secretary under the preceding 
                sentence.
  (c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to 
section 2221 for one or more fiscal years and that undergo a 
consolidation or merger, the percentage applicable to the 
resulting teaching hospital for purposes of section 2221(b) is 
the sum of the respective percentages that would have applied 
pursuant to such section if the hospitals had not undergone the 
consolidation or merger.

SEC. 2223. INDIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
                    HOSPITALS IN CERTAIN STATES.

  (a) In General.--In the case of a teaching hospital in a 
State for which a demonstration project under section 
1814(b)(3) is in effect, this section applies in lieu of 
section 2221. For purposes of section 2211(a)(1), the amount 
determined for a teaching hospital for a fiscal year is the 
product of--
          (1) the amount in the Indirect-Costs Medical 
        Education Account for the fiscal year pursuant to the 
        allocation under section 2201(d)(3)(A) for the year; 
        and
          (2) the percentage determined under subsection (b) 
        for the hospital.
  (b) Determination of Percentage.--For purposes of subsection 
(a)(2):
          (1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under 
        section 1886(d)(5)(B) by the hospital involved with 
        respect to each of the fiscal years of the applicable 
        period if such section (as in effect for such fiscal 
        years) had applied to the hospital for such years.
          (2) The percentage determined under this subsection 
        for the hospital for a fiscal year is a mean average 
        percentage determined for the hospital in accordance 
        with the methodology of section 2221(b)(1), except that 
        the estimate made by the Secretary under paragraph (1) 
        of this subsection for a fiscal year of the applicable 
        period is deemed to be the amount that applies for 
        purposes of section 2221(b)(3)(A) for such year.
  (c) Rule Regarding Payments From Certain Amounts.--In the 
case of a teaching hospital in a State for which a 
demonstration project under section 1814(b)(3) is in effect, 
this section does not provide any payment to the hospital from 
amounts transferred to the Fund under section 1886(j).
  (d) Adjustment Regarding Payments to Other Hospitals.--In the 
case of a fiscal year for which payments pursuant to subsection 
(a) are made to one or more teaching hospitals, the following 
applies:
          (1) The Secretary shall determine a percentage equal 
        to the sum of the respective percentages determined for 
        the hospitals under subsection (b).
          (2) The Secretary shall determine an amount equal to 
        the product of--
                  (A) the percentage determined under paragraph 
                (1); and
                  (B) the amount in the Indirect-Costs Medical 
                Education Account for the fiscal year pursuant 
                to the transfer under section 1886(j)(1).
          (3) The Secretary shall, for each hospital (other 
        than hospitals described in subsection (a)), make 
        payments to the hospital whose sum is equal to the 
        product of--
                  (A) the amount determined under paragraph 
                (2); and
                  (B) the percentage that applies to the 
                hospital for purposes of section 2221(b), 
                except that such percentage shall be adjusted 
                in accordance with the methodology of section 
                2221(b)(1) to the extent determined by the 
                Secretary to be necessary with respect to a sum 
                that equals 100 percent.

    Subpart 3--Amount Relating to Direct Costs of Graduate Medical 
                               Education

SEC. 2231. DETERMINATION OF AMOUNT RELATING TO DIRECT COSTS.

  (a) In General.--For purposes of section 2211(a)(2), the 
amount determined under this section for a teaching hospital 
for a fiscal year is the sum of--
          (1) the amount determined under subsection (b) 
        (relating to the General Direct-Costs Medical Education 
        Account); and
          (2) the amount determined under subsection (c) 
        (relating to the Medicare Direct-Costs Medical 
        Education Account).
  (b) Payment From General Account.--
          (1) In general.--For purposes of subsection (a)(1), 
        the amount determined under this subsection for a 
        teaching hospital for a fiscal year is the product of--
                  (A) the amount in the General Direct-Costs 
                Medical Education Account on the applicable 
                date under section 2201(d) (once the 
                appropriation under such section is made); and
                  (B) the percentage determined for the 
                hospital under paragraph (2).
          (2) Hospital-specific percentage.--
                  (A) In general.--For purposes of paragraph 
                (1)(B), the percentage determined under this 
                paragraph for a teaching hospital is the mean 
                average of the respective percentages 
                determined under subparagraph (B) for each 
                fiscal year of the applicable period (as 
                defined in section 2221(b)(2)), adjusted by the 
                Secretary (upward or downward, as the case may 
                be) on a pro rata basis to the extent necessary 
                to ensure that the sum of the percentages 
                determined under this subparagraph for all 
                teaching hospitals is equal to 100 percent. The 
                preceding sentence is subject to sections 2232 
                through 2234.
                  (B) Respective determinations for fiscal 
                years of applicable period.--For purposes of 
                subparagraph (A), the percentage determined 
                under this subparagraph for a teaching hospital 
                for a fiscal year of the applicable period is 
                the percentage constituted by the ratio of--
                          (i) the total amount of payments 
                        received by the hospital under section 
                        1886(h) for cost reporting periods 
                        beginning during the fiscal year 
                        involved; to
                          (ii) the sum of the respective 
                        amounts determined under clause (i) for 
                        the fiscal year for all teaching 
                        hospitals.
  (3) Availability of data.--If a teaching hospital received 
the payments specified in paragraph (2)(B)(i) during the 
applicable period but a complete set of the relevant data is 
not available to the Secretary for purposes of determining an 
amount under such paragraph for the fiscal year involved, the 
Secretary shall for purposes of such paragraph make an estimate 
on the basis of such data as are available to the Secretary for 
the applicable period.
  (c) Payment From Medicare Account.--
          (1) In general.--For purposes of subsection (a)(2), 
        the amount determined under this subsection for a 
        teaching hospital for a fiscal year is the product of--
                  (A) the amount in the Medicare Direct-Costs 
                Medical Education Account on the applicable 
                date under section 2201(d) (once the 
                appropriation under such section is made); and
                  (B) the percentage determined for the 
                hospital under paragraph (2).
          (2) Hospital-specific percentage.--For purposes of 
        paragraph (1)(B), the percentage determined under this 
        subsection for a teaching hospital for a fiscal year is 
        the percentage constituted by the ratio of--
                  (A) the estimate made by the Secretary for 
                the hospital for the fiscal year under section 
                1886(j)(2)(B); to
                  (B) the sum of the respective estimates 
                referred to in subparagraph (A) for all 
                teaching hospitals.

SEC. 2232. DIRECT COSTS; SPECIAL RULES REGARDING DETERMINATION OF 
                    HOSPITAL-SPECIFIC PERCENTAGE.

  (a) Special Rule Regarding Fiscal Years 1995 and 1996.--
          (1) In general.--In the case of a teaching hospital 
        whose first payments under 1886(h) were for cost 
        reporting period beginning in fiscal year 1995 or in 
        fiscal year 1996 (referred to in this subsection 
        individually as a ``first payment year''), the 
        percentage determined under paragraph (2) for the 
        hospital is deemed to be the percentage applicable 
        under section 2231(b)(2) to the hospital, except that 
        the percentage under paragraph (2) shall be adjusted in 
        accordance with section 2231(b)(2)(A) to the extent 
        determined by the Secretary to be necessary with 
        respect to a sum that equals 100 percent.
          (2) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this 
        paragraph for a teaching hospital is the percentage 
        constituted by the ratio of the amount determined under 
        subparagraph (A) to the amount determined under 
        subparagraph (B), as follows:
                  (A)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the total 
                amount of payments received by the hospital 
                under section 1886(h) for cost reporting 
                periods beginning in fiscal year 1995.
                  (ii) If the first payment year for the 
                hospital is fiscal year 1996, the amount 
                determined under this subparagraph is an amount 
                equal to an estimate by the Secretary of the 
                total amount of payments that would have been 
                paid to the hospital under section 1886(h) for 
                cost reporting periods beginning in fiscal year 
                1995 if such section, as in effect for fiscal 
                year 1996, had applied to the hospital for 
                fiscal year 1995.
                  (B)(i) If the first payment year for the 
                hospital is fiscal year 1995, the amount 
                determined under this subparagraph is the 
                aggregate total of the payments received by 
                teaching hospitals under section 1886(h) for 
                cost reporting periods beginning in fiscal year 
                1995.
                  (ii) If the first payment year for the 
                hospital is fiscal year 1996--
                          (I) the Secretary shall make an 
                        estimate in accordance with 
                        subparagraph (A)(ii) for all teaching 
                        hospitals; and
                          (II) the amount determined under this 
                        subparagraph is the sum of the 
                        estimates made by the Secretary under 
                        subclause (I).
  (b) New Teaching Hospitals.--
          (1) In general.--In the case of a teaching hospital 
        that did not receive payments under section 1886(h) for 
        any of the fiscal years 1992 through 1996, the 
        percentage determined under paragraph (3) for the 
        hospital is deemed to be the percentage applicable 
        under section 2231(b)(2) to the hospital, except that 
        the percentage under paragraph (3) shall be adjusted in 
        accordance with section 2231(b)(2)(A) to the extent 
        determined by the Secretary to be necessary with 
        respect to a sum that equals 100 percent. This 
        subsection does not apply to a teaching hospital 
        described in the preceding sentence if the hospital is 
        in a State for which a demonstration project under 
        section 1814(b)(3) is in effect.
          (2) Designated fiscal year regarding data.--The 
        determination under paragraph (3) of a percentage for a 
        teaching hospital described in paragraph (1) shall be 
        made for the most recent fiscal year for which the 
        Secretary has sufficient data to make the determination 
        (referred to in this subsection as the ``designated 
        fiscal year'').
          (3) Determination of percentage.--For purposes of 
        paragraph (1), the percentage determined under this 
        paragraph for the teaching hospital involved is the 
        percentage constituted by the ratio of the amount 
        determined under subparagraph (A) to the amount 
        determined under subparagraph (B), as follows:
                  (A) The amount determined under this 
                subparagraph is an amount equal to an estimate 
                by the Secretary of the total amount of 
                payments that would have been paid to the 
                hospital under section 1886(h) for the 
                designated fiscal year if such section, as in 
                effect for the first fiscal year for which 
                payments pursuant to this subsection are to be 
                made to the hospital, had applied to the 
                hospital for cost reporting periods beginning 
                in the designated fiscal year.
                  (B) The Secretary shall make an estimate in 
                accordance with subparagraph (A) for all 
                teaching hospitals. The amount determined under 
                this subparagraph is the sum of the estimates 
                made by the Secretary under the preceding 
                sentence.
  (c) Consolidations and Mergers.--In the case of two or more 
teaching hospitals that have each received payments pursuant to 
section 2231 for one or more fiscal years and that undergo a 
consolidation or merger, the percentage applicable to the 
resulting teaching hospital for purposes of section 2231(b) is 
the sum of the respective percentages that would have applied 
pursuant to such section if the hospitals had not undergone the 
consolidation or merger.

SEC. 2233. DIRECT COSTS; AUTHORITY FOR PAYMENTS TO CONSORTIA OF 
                    PROVIDERS.

  (a) In General.--In lieu of making payments to teaching 
hospitals pursuant to section 2231, the Secretary may make 
payments under this section to consortia that meet the 
requirements of subsection (b).
  (b) Qualifying Consortium.--For purposes of subsection (a), a 
consortium meets the requirements of this subsection if the 
consortium is in compliance with the following:
          (1) The consortium consists of an approved medical 
        residency training program, a teaching hospital, and 
        one or more of the following entities:
                  (A) Schools of medicine or osteopathic 
                medicine.
                  (B) Other teaching hospitals (or the approved 
                medical residency training programs of the 
                hospitals).
                  (C) Community health centers (under section 
                330 of the Public Health Service Act), migrant 
                health centers (under section 329 of such Act), 
                or facilities described in section 340 of such 
                Act.
                  (D) Medical group practices.
                  (E) Managed care entities.
                  (F) Entities furnishing outpatient services.
                  (G) Such other entities as the Secretary 
                determines to be appropriate.
          (2) The members of the consortium have agreed to 
        participate in the programs of graduate medical 
        education that are operated by the teaching hospitals 
        in the consortium.
          (3) With respect to the receipt by the consortium of 
        payments made pursuant to this section, the members of 
        the consortium have agreed on a method for allocating 
        the payments among the members.
          (4) The consortium meets such additional requirements 
        as the Secretary may establish.
  (c) Payments From Accounts.--
          (1) In general.--Subject to subsection (d), the total 
        of payments to a qualifying consortium for a fiscal 
        year pursuant to subsection (a) shall be the sum of--
          (1) the aggregate amount determined for the teaching 
        hospitals of the consortium pursuant to paragraph (1) 
        of section 2231(a); and
          (2) an amount determined in accordance with the 
        methodology that applies pursuant to paragraph (2) of 
        such section, except that the estimate used for 
        purposes of subsection (c)(2)(A) of such section shall 
        be the estimate made for the consortium under section 
        1886(j)(2)(C)(ii).
  (d) Limitation on Aggregate Total of Payments to Consortia.--
The aggregate total of the amounts paid under subsection (c)(2) 
to qualifying consortia for a fiscal year may not exceed the 
sum of--
          (1) the aggregate total of the amounts that would 
        have been paid under section 2231(c) for the fiscal 
        year to the teaching hospitals of the consortia if the 
        hospitals had not been participants in the consortia; 
        and
          (2) an amount equal to 1 percent of the amount that 
        applies under paragraph (1)(A) of such section for the 
        fiscal year (relating to the Medicare Direct-Costs 
        Medical Education Account).
  (e) Definition.--For purposes of this title, the term 
``qualifying consortium'' means a consortium that meets the 
requirements of subsection (b).

SEC. 2234. DIRECT COSTS; ALTERNATIVE PAYMENTS REGARDING TEACHING 
                    HOSPITALS IN CERTAIN STATES.

  (a) In General.--In the case of a teaching hospital in a 
State for which a demonstration project under section 
1814(b)(3) is in effect, this section applies in lieu of 
section 2231. For purposes of section 2211(a)(2), the amount 
determined for a teaching hospital for a fiscal year is the 
product of--
          (1) the amount in the General Direct-Costs Medical 
        Education Account on the applicable date under section 
        2201(d) (once the appropriation under such section is 
        made); and
          (2) the percentage determined under subsection (b) 
        for the hospital.
  (b) Determination of Percentage.--For purposes of subsection 
(a)(2):
          (1) The Secretary shall make an estimate of the total 
        amount of payments that would have been received under 
        section 1886(h) by the hospital involved with respect 
        to each of the fiscal years of the applicable period if 
        such section (as in effect for such fiscal years) had 
        applied to the hospital for such years.
          (2) The percentage determined under this subsection 
        for the hospital for a fiscal year is a mean average 
        percentage determined for the hospital in accordance 
        with the methodology of section 2231(b)(2)(A), except 
        that the estimate made by the Secretary under paragraph 
        (1) of this subsection for a fiscal year of the 
        applicable period is deemed to be the amount that 
        applies for purposes of section 2231(b)(2)(B)(i) for 
        such year.
  (c) Rule Regarding Payments From Certain Amounts.--In the 
case of a teaching hospital in a State for which a 
demonstration project under section 1814(b)(3) is in effect, 
this section does not provide any payment to the hospital from 
amounts transferred to the Fund under section 1886(j).

                     Subpart 4--General Provisions

SEC. 2241. ADJUSTMENTS IN PAYMENT AMOUNTS.

  (a) Collection of Data on Accuracy of Estimates.--The 
Secretary shall collect data on whether the estimates made by 
the Secretary under section 1886(j) for a fiscal year were 
substantially accurate.
  (b) Adjustments.--If the Secretary determines under 
subsection (a) that an estimate for a fiscal year was not 
substantially accurate, the Secretary shall, for the first 
fiscal year beginning after the Secretary makes the 
determination--
          (1) make adjustments accordingly in transfers to the 
        Fund under section 1886(j); and
          (2) make adjustments accordingly in the amount of 
        payments to teaching hospitals pursuant to 2231(c) (or, 
        as applicable, to qualifying consortia pursuant to 
        section 2233(c)(2)).

                         Part C--Other Matters

SEC. 2251. ADVISORY PANEL ON REFORM IN FINANCING OF TEACHING HOSPITALS 
                    AND GRADUATE MEDICAL EDUCATION.

  (a) Establishment.--The Chair of the Medicare Payment Review 
Commission under section 1806 shall establish a temporary 
advisory panel to be known as the Advisory Panel on Financing 
for Teaching Hospitals and Graduate Medical Education (in this 
section referred to as the ``Panel'').
  (b) Duties.--The Panel shall develop recommendations on 
whether and to what extent Federal policies regarding teaching 
hospitals and graduate medical education should be reformed, 
including recommendations regarding the following:
          (1) The financing of graduate medical education, 
        including consideration of alternative broad-based 
        sources of funding for such education.
          (2) The financing of teaching hospitals, including 
        consideration of the difficulties encountered by such 
        hospitals as competition among health care entities 
        increases. Matters considered under this paragraph 
        shall include consideration of the effects on teaching 
        hospitals of the method of financing used for the 
        MedicarePlus program under part C of title XVIII.
          (3) The methodology for making payments for graduate 
        medical education, and the selection of entities to 
        receive the payments. Matters considered under this 
        paragraph shall include the following:
                  (A) The methodology under part B for making 
                payments from the Fund, including the use of 
                data from the fiscal years 1992 through 1994, 
                and including the methodology that applies with 
                respect to consolidations and mergers of 
                participants in the program under such part and 
                with respect to the inclusion of additional 
                participants in the program.
                  (B) Issues regarding children's hospitals, 
                and approved medical residency training 
                programs in pediatrics.
                  (C) Whether and to what extent payments are 
                being made (or should be made) for graduate 
                training in the various nonphysician health 
                professions.
          (4) Federal policies regarding international medical 
        graduates.
          (5) The dependence of schools of medicine on service-
        generated income.
          (6) The effects of the amendments made by section 
        15412 of the Medicare Preservation Act of 1995, 
        including adverse effects on teaching hospitals that 
        result from modifications in policies regarding 
        international medical graduates.
          (7) Whether and to what extent the needs of the 
        United States regarding the supply of physicians will 
        change during the 10-year beginning on October 1, 1995, 
        and whether and to what extent any such changes will 
        have significant financial effects on teaching 
        hospitals.
          (8) The appropriate number and mix of residents.
  (c) Composition.--Not later than three months after being 
designated as the initial chairman of the Medicare Payment 
Review Commission, the chairman of the Commission shall appoint 
to the Panel 19 individuals who are not members of the 
Commission, who are not officers or employees of the United 
States, and who possess expertise on matters on which the Panel 
is to make recommendations under subsection (b). Such 
individuals shall include the following:
          (1) Deans from allopathic and osteopathic schools of 
        medicine.
          (2) Chief executive officers (or equivalent 
        administrative heads) from academic health centers, 
        integrated health care systems, and approved medical 
        residency training programs.
          (3) Chairs of departments or divisions from 
        allopathic and osteopathic schools of medicine, schools 
        of dentistry, and approved medical residency training 
        programs in oral surgery.
          (4) Individuals with leadership experience from each 
        of the fields of advanced practice nursing, physician 
        assistants, and podiatric medicine.
          (5) Individuals with substantial experience in the 
        study of issues regarding the composition of the health 
        care workforce of the United States.
          (6) Individuals with expertise on the financing of 
        health care.
          (7) Representatives from health insurance 
        organizations and health plan organizations.
  (d) Relationship of Panel to Medicare Payment Review 
Commission.--From amounts appropriated under subsection (n), 
the Medicare Review Payment Commission shall provide for the 
Panel such staff and administrative support (including quarters 
for the Panel) as may be necessary for the Panel to carry out 
the duties under subsection (b).
  (e) Chair.--The Panel shall designate a member of the Panel 
to serve as the Chair of the Panel.
  (f) Meetings.--The Panel shall meet at the call of the Chair 
or a majority of the members, except that the first meeting of 
the Panel shall be held not later than three months after the 
date on which appointments under subsection (c) are completed.
  (g) Terms.--The term of a member of the Panel is the duration 
of the Panel.
  (h) Vacancies.--
          (1) In general.--A vacancy in the membership of the 
        Panel does not affect the power of the remaining 
        members to carry out the duties under subsection (b). A 
        vacancy in the membership of the Panel shall be filled 
        in the manner in which the original appointment was 
        made.
          (2) Incomplete term.--If a member of the Panel does 
        not serve the full term applicable to the member, the 
        individual appointed to fill the resulting vacancy 
        shall be appointed for the remainder of the term of the 
        predecessor of the individual.
  (i) Compensation; Reimbursement of Expenses.--
          (1) Compensation.--Members of the Panel shall receive 
        compensation for each day (including traveltime) 
        engaged in carrying out the duties of the Committee. 
        Such compensation may not be in an amount in excess of 
        the daily equivalent of the annual maximum rate of 
        basic pay payable under the General Schedule (under 
        title 5, United States Code) for positions above GS-15.
          (2) Reimbursement.--Members of the Panel may, in 
        accordance with chapter 57 of title 5, United States 
        Code, be reimbursed for travel, subsistence, and other 
        necessary expenses incurred in carrying out the duties 
        of the Panel.
  (j) Consultants.--The Panel may procure such temporary and 
intermittent services of consultants under section 3109(b) of 
title 5, United States Code, as the Panel may determine to be 
useful in carrying out the duties under subsection (b). The 
Panel may not procure services under this subsection at any 
rate in excess of the daily equivalent of the maximum annual 
rate of basic pay payable under the General Schedule for 
positions above GS-15. Consultants under this subsection may, 
in accordance with chapter 57 of title 5, United States Code, 
be reimbursed for travel, subsistence, and other necessary 
expenses incurred for activities carried out on behalf of the 
Panel pursuant to subsection (b).
  (k) Powers.--
          (1) In general.--For the purpose of carrying out the 
        duties of the Panel under subsection (b), the Panel may 
        hold such hearings, sit and act at such times and 
        places, take such testimony, and receive such evidence 
        as the Panel considers appropriate.
          (2) Obtaining official information.--Upon the request 
        of the Panel, the heads of Federal agencies shall 
        furnish directly to the Panel information necessary for 
        the Panel to carry out the duties under subsection (b).
          (3) Use of mails.--The Panel may use the United 
        States mails in the same manner and under the same 
        conditions as Federal agencies.
  (l) Reports.--
          (1) First interim report.--Not later than one year 
        after the date of the enactment of the Medicare 
        Preservation Act of 1995, the Panel shall submit to the 
        Congress a report providing the recommendations of the 
        Panel regarding the matters specified in paragraphs (1) 
        through (4) of subsection (b).
          (2) Second interim report.--Not later than 2 years 
        after the date of enactment specified in paragraph (1), 
        the Panel shall submit to the Congress a report 
        providing the recommendations of the Panel regarding 
        the matters specified in paragraphs (5) and (6) of 
        subsection (b).
          (3) Final report.--Not later than 3 years after the 
        date of enactment specified in paragraph (1), the Panel 
        shall submit to the Congress a final report providing 
        the recommendations of the Panel under subsection (b).
  (m) Duration.--The Panel terminates upon the expiration of 
the 180-day period beginning on the date on which the final 
report under subsection (l)(3) is submitted to the Congress.
  (n) Authorization of Appropriations.--
          (1) In general.--Subject to paragraph (2), for the 
        purpose of carrying out this section, there are 
        authorized to be appropriated such sums as may be 
        necessary for each of the fiscal years 1996 through 
        2000.
          (2) Limitation.--The authorization of appropriations 
        established in paragraph (1) is effective only with 
        respect to appropriations made from allocations under 
        section 302(b) of the Congressional Budget Act of 
        1974--
                  (A) for the Subcommittee on Labor, Health and 
                Human Services, and Education, Committee on 
                Appropriations of the House of Representatives, 
                in the case of any bill, resolution, or 
                amendment considered in the House; and
                  (B) for the Subcommittee on Labor, Health and 
                Human Services, and Education, Committee on 
                Appropriations of the Senate, in the case of 
                any bill, resolution, or amendment considered 
                in the Senate.
                              ----------                              


                     INTERNAL REVENUE CODE OF 1986

                        Subtitle A--Income Taxes

          * * * * * * * *

                  CHAPTER 1--NORMAL TAXES AND SURTAXES

          * * * * * * *

              Subchapter B--Computation of Taxable Income

          * * * * * * *

        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

Sec. 101. Certain death benefits.
Sec. 102. Gifts and inheritances.
Sec. 103. Interest on state and local bonds.
     * * * * * * *
[Sec. 137. Cross reference to other Acts.]
Sec. 137. MedicarePlus MSA's.
Sec. 138. Cross references to other Acts.
          * * * * * * *

Sec. 105. AMOUNT RECEIVED UNDER ACCIDENT AND HEALTH PLANS.

    (a) * * *
          * * * * * * *
    (j) Certain Rebates Under Social Security Act.--Gross 
income does not include any rebate received under section 
1852(e)(1)(A) of the Social Security Act during the taxable 
year.
          * * * * * * *

SEC. 137. MEDICAREPLUS MSA'S.

    (a) Exclusion.--Gross income shall not include any payment 
to the MedicarePlus MSA of an individual by the Secretary of 
Health and Human Services under section 1855(f)(1)(B) of the 
Social Security Act.
    (b) MedicarePlus MSA.--For purposes of this section--
          (1) MedicarePlus msa.--The term ``MedicarePlus MSA'' 
        means a trust created or organized in the United States 
        exclusively for the purpose of paying the qualified 
        medical expenses of the account holder, but only if the 
        written governing instrument creating the trust meets 
        the following requirements:
                  (A) Except in the case of a trustee-to-
                trustee transfer described in subsection 
                (d)(4), no contribution will be accepted unless 
                it is made by the Secretary of Health and Human 
                Services under section 1855(f)(1)(B) of the 
                Social Security Act.
                  (B) The trustee is a bank (as defined in 
                section 408(n)), an insurance company (as 
                defined in section 816), or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which such person 
                will administer the trust will be consistent 
                with the requirements of this section.
                  (C) No part of the trust assets will be 
                invested in life insurance contracts.
                  (D) The assets of the trust will not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
                  (E) The interest of an individual in the 
                balance in his account is nonforfeitable.
                  (F) Trustee-to-trustee transfers described in 
                subsection (d)(4) may be made to and from the 
                trust.
          (2) Qualified medical expenses.--
                  (A) In general.--The term ``qualified medical 
                expenses'' means, with respect to an account 
                holder, amounts paid by such holder--
                          (i) for medical care (as defined in 
                        section 213(d)) for the account holder, 
                        but only to the extent such amounts are 
                        not compensated for by insurance or 
                        otherwise, or
                          (ii) for long-term care insurance for 
                        the account holder.
                  (B) Health insurance may not be purchased 
                from account.--Subparagraph (A)(i) shall not 
                apply to any payment for insurance.
          (3) Account holder.--The term ``account holder'' 
        means the individual on whose behalf the MedicarePlus 
        MSA is maintained.
          (4) Certain rules to apply.--Rules similar to the 
        rules of subsections (g) and (h) of section 408 shall 
        apply for purposes of this section.
      (c) Tax Treatment of Accounts.--
          (1) In general.--A MedicarePlus MSA is exempt from 
        taxation under this subtitle unless such MSA has ceased 
        to be a MedicarePlus MSA by reason of paragraph (2). 
        Notwithstanding the preceding sentence, any such MSA is 
        subject to the taxes imposed by section 511 (relating 
        to imposition of tax on unrelated business income of 
        charitable, etc. organizations).
          (2) Account assets treated as distributed in the case 
        of prohibited transactions or account pledged as 
        security for loan.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to 
        MedicarePlus MSA's, and any amount treated as 
        distributed under such rules shall be treated as not 
        used to pay qualified medical expenses.
      (d) Tax Treatment of Distributions.--
          (1) Inclusion of amounts not used for qualified 
        medical expenses.--No amount shall be included in the 
        gross income of the account holder by reason of a 
        payment or distribution from a MedicarePlus MSA which 
        is used exclusively to pay the qualified medical 
        expenses of the account holder. Any amount paid or 
        distributed from a MedicarePlus MSA which is not so 
        used shall be included in the gross income of such 
        holder.
          (2) Penalty for distributions not used for qualified 
        medical expenses in minimum balance not maintained.--
                  (A) In general.--The tax imposed by this 
                chapter for any taxable year in which there is 
                a payment or distribution from a MedicarePlus 
                MSA which is not used exclusively to pay the 
                qualified medical expenses of the account 
                holder shall be increased by 50 percent of the 
                excess (if any) of--
                          (i) the amount of such payment or 
                        distribution, over
                          (ii) the excess (if any) of--
                                  (I) the fair market value of 
                                the assets in the MedicarePlus 
                                MSA as of the close of the 
                                calendar year preceding the 
                                calendar year in which the 
                                taxable year begins, over
                                  (II) an amount equal to 60 
                                percent of the deductible under 
                                the high deductible/medisave 
                                product covering the account 
                                holder as of January 1 of the 
                                calendar year in which the 
                                taxable year begins.
                  (B) Exceptions.--Subparagraph (A) shall not 
                apply if the payment or distribution is made on 
                or after the date the account holder--
                          (i) becomes disabled within the 
                        meaning of section 72(m)(7), or
                          (ii) dies.
                  (C) Special rules.--For purposes of 
                subparagraph (A)--
                          (i) all MedicarePlus MSA's of the 
                        account holder shall be treated as 1 
                        account,
                          (ii) all payments and distributions 
                        not used exclusively to pay the 
                        qualified medical expenses of the 
                        account holder during any taxable year 
                        shall be treated as 1 distribution, and
                          (iii) any distribution of property 
                        shall be taken into account at its fair 
                        market value on the date of the 
                        distribution.
          (3) Withdrawal of erroneous contributions.--
        Paragraphs (1) and (2) shall not apply to any payment 
        or distribution from a MedicarePlus MSA to the 
        Secretary of Health and Human Services of an erroneous 
        contribution to such MSA and of the next income 
        attributable to such contribution.
          (4) Trustee-to-trustee transfers.--Paragraphs (1) and 
        (2) shall not apply to any trustee-to-trustee transfer 
        from a Medicare Plus MSA of an account holder to 
        another MedicarePlus MSA of such account holder.
          (5) Coordination with medical expense deduction.--For 
        purposes of section 213, any payment or distribution 
        out of a MedicarePlus MSA for qualified medical 
        expenses shall not be treated as an expense paid for 
        medical care.
    (e) Treatment of Account After Death of Account Holder.--
          (1) Treatment if designated beneficiary is spouse.--
                  (A) In general.--In the case of an account 
                holder's interest in a MedicarePlus MSA which 
                is payable to (or for the benefit of) such 
                holder's spouse upon the death of such holder, 
                such MedicarePlus MSA shall be treated as a 
                MedicarePlus MSA of such spouse as of the date 
                of such death.
                  (B) Special rules if spouse not medicare 
                eligible.--If, as of the date of such death, 
                such spouse is not entitled to benefits under 
                title XVIII of the Social Security Act, then 
                after the date of such death--
                          (i) the Secretary of Health and Human 
                        Services may not make any payments to 
                        such MedicarePlus MSA, other than 
                        payments attributable to periods before 
                        such date,
                          (ii) in applying subsection (b)(2) 
                        with respect to such MedicarePlus MSA, 
                        references to the account holder shall 
                        be treated as including references to 
                        any dependent (as defined in section 
                        152) of such spouse and any subsequent 
                        spouse of such spouse, and
                          (iii) in lieu of applying subsection 
                        (d)(2), the rules of section 220(f)(2) 
                        shall apply.
          (2) Treatment if designated beneficiary is not 
        spouse.--In the case of an account holder's interest in 
        a MedicarePlus MSA which is payable to (or for the 
        benefit of) any person other than such holder's spouse 
        upon the death of such holder--
                  (A) such account shall cease to be a 
                MedicarePlus MSA as of the date of death, and
                  (B) an amount equal to the fair market value 
                of the assets in such account on such date 
                shall be includible--
                          (i) if such person is not the estate 
                        of such holder, in such person's gross 
                        income for the taxable year which 
                        includes such date, or
                          (ii) if such person is the estate of 
                        such holder, in such holder's gross 
                        income for last taxable year of such 
                        holder.
    (f) Reports.--
          (1) In general.--The trustee of a MedicarePlus MSA 
        shall make such reports regarding such account to the 
        Secretary and to the account holder with respect to--
                  (A) the fair market value of the assets in 
                such MedicarePlus MSA as of the close of each 
                calendar year, and
                  (B) contributions, distributions, and other 
                matters,
        as the Secretary may require by regulations.
          (2) Time and manner of reports.--The reports required 
        by this subsection--
                  (A) shall be filed at such time and in such 
                manner as the Secretary prescribes in such 
                regulations, and
                  (B) shall be furnished to the account 
                holder--
                          (i) not later than January 31 of the 
                        calendar year following the calendar 
                        year to which such reports relate, and
                          (ii) in such manner as the Secretary 
                        prescribes in such regulations.
          * * * * * * *

SEC.[137.] 138. CROSS REFERENCES TO OTHER ACTS.

    (a) For exemption of--
          (1) Allowances and expenditures to meet losses 
        sustained by persons serving the United States abroad, 
        due to appreciation of foreign currencies, see section 
        5943 of title 5, United States Code.
          * * * * * * *

                   Subchapter F--Exempt Organizations

          * * * * * * *

                          PART I--GENERAL RULE

          * * * * * * *

SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

    (a) * * *
          * * * * * * *
    (n) Treatment of Hospitals Participating in Provider-
Sponsored Organizations.--An organization shall not fail to be 
treated as organized and operated exclusively for a charitable 
purpose for purposes of subsection (c)(3) solely because a 
hospital which is owned and operated by such organization 
participates in a provider-sponsored organization (as defined 
in section 1854(a)(1) of the Social Security Act), whether or 
not the provider-sponsored organization is exempt from tax. For 
purposes of subsection (c)(3), any person with a material 
financial interest in such a provider-sponsored organization 
shall be treated as a private shareholder or individual with 
respect to the hospital.
    [n] (o) Cross Reference.--
    For nonexemption of Communist-Controlled organizations, see 
section 11(b) of the Internal Security Act of 1950 (64 Stat. 
997; 50 U.S.C. 790 (b)).
          * * * * * * *

                   Subtitle B--Estate and Gift Taxes

          * * * * * * *

                         CHAPTER 11--ESTATE TAX

          * * * * * * *

             Subchapter A--Estates of Citizens or Residents

          * * * * * * *

                        PART IV--TAXABLE ESTATE

Sec. 2051. Definition of taxable estate.
Sec. 2053. Expenses, indebtedness, and taxes.
Sec. 2054. Losses.
Sec. 2055. Transfers for public, charitable, and religious uses.
Sec. 2056. Bequests, etc., to surviving spouse.
Sec. 2056A. Qualified domestic trust.
Sec. 2057. MedicarePlus MSA's.
          * * * * * * *

SEC. 2057. MEDICAREPLUS MSA'S.

    For purposes of the tax imposed by section 2001, the value 
of the taxable estate shall be determined by deducting from the 
value of the gross estate an amount equal to the value of any 
MedicarePlus MSA (as defined in section 137(b)) included in the 
gross estate.
          * * * * * * *

                 Subtitle D--Miscellaneous Excise Taxes

          * * * * * * *

               CHAPTER 43--QUALIFIED PENSION, ETC., PLANS

          * * * * * * *

SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.

    (a) * * *
          * * * * * * *
    (c) Prohibited Transaction.--
          (1) General rule.--For purposes of this section, the 
        term ``prohibited transaction'' means any direct or 
        indirect--
                  (A) sale or exchange, or leasing, of any 
                property between a plan and a disqualified 
                person;
          * * * * * * *
          (4) Special rule for MedicarePlus MSA's.--An 
        individual for whose benefit a MedicarePlus MSA (within 
        the meaning of section 137(b)) is established shall be 
        exempt from the tax imposed by this section with 
        respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) 
        if, with respect to such transaction, the account 
        ceases to be a MedicarePlus MSA by reason of the 
        application of section 137(c)(2) to such account.
          * * * * * * *
    (e) Definitions.--
          [(1) Plan.--For purposes of this section, the term 
        ``plan'' means a trust described in section 401(a) 
        which forms a part of a plan, or a plan described in 
        section 403(a), which trust or plan is exempt from tax 
        under section 501(a), an individual retirement account 
        described in section 408(a) or an individual retirement 
        annuity described in section 408(b) (or a trust, plan, 
        account, or annuity which, at any time, has been 
        determined by the Secretary to be such a trust, plan, 
        or account).]
          (1) Plan.--For purposes of this section, the term 
        ``plan'' means--
                  (A) a trust described in section 401(a) which 
                forms a part of a plan, or a plan described in 
                section 403(a), which trust or plan is exempt 
                from tax under section 501(a),
                  (B) an individual retirement account 
                described in section 408(a),
                  (C) an individual retirement annuity 
                described in section 408(b),
                  (D) a medical savings account described in 
                section 220(d),
                  (E) a MedicarePlus MSA described in section 
                137(b), or
                  (F) a trust, plan, account, or annuity which, 
                at any time, has been determined by the 
                Secretary to be described in any preceding 
                subparagraph of this paragraph.
          * * * * * * *

                Subtitle F--Procedure and Administration

          * * * * * * *

                  CHAPTER 61--INFORMATION AND RETURNS

          * * * * * * *

                 Subchapter B--Miscellaneous Provisions

          * * * * * * *

SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN 
                    INFORMATION.

    (a) * * *
          * * * * * * *
    (l) Disclosure of Returns and Return Information for 
Purposes Other Than Tax Administration.--
          (1) * * *
          * * * * * * *
          (12) Disclosure of certain taxpayer identity 
        information for verification of employment status of 
        medicare beneficiary and spouse of medicare 
        beneficiary.--
                  (A) * * *
          * * * * * * *
                  [(F) Termination.--Subparagraphs (A) and (B) 
                shall not apply to--
                          [(i) any request made after September 
                        30, 1988, and
                          [(ii) any request made before such 
                        date for information relating to--
                                  [(I) 1997 or thereafter in 
                                the case of subparagraph (A), 
                                or
                                  [(II) 1998 or thereafter in 
                                the case of subparagraph (B).]
          * * * * * * *

 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
                               PENALTIES

          * * * * * * *

                   Subchapter B--Assessable Penalties

Part I. General provisions.
Part II. Failure to comply with certain information reporting 
          requirements.

                       PART I--GENERAL PROVISIONS

Sec. 6671. Rules for application of assessable penalties.
Sec. 6672. Failure to collect and pay over tax, or attempt to evade or 
          defeat tax.
Sec. 6673. Sanctions and costs awarded by courts.
          * * * * * * *
[Sec. 6693. Failure to provide reports on individual retirement accounts 
          or annuities; penalties relating to designated nondeductible 
          contributons.]
Sec. 6693. Failure to file reports on individual retirement plans and 
          certain other tax-favored accounts; penalties relating to 
          designated nondeductible contributions.
          * * * * * * *

[SEC. 6693. FAILURE TO PROVIDE REPORTS ON INDIVIDUAL RETIREMENT 
                    ACCOUNTS OR ANNUITIES; PENALTIES RELATING TO 
                    DESIGNATED NONDEDUCTIBLE CONTRIBUTIONS.

    [(a) The person required by subsection (i) or (l) of 
section 408 to file a report regarding an individual retirement 
account or individual retirement annuity at the time and in the 
manner required by such subsecton shall pay a penalty of $50 
for each failure unless it is shown that such failure is due to 
reasonable cause.]

SEC. 6693. FAILURE TO FILE REPORTS ON INDIVIDUAL RETIREMENT PLANS AND 
                    CERTAIN OTHER TAX-FAVORED ACCOUNTS; PENALTIES 
                    RELATING TO DESIGNATED NONDEDUCTIBLE CONTRIBUTIONS.

    (a) Reports.--
          (1) In General.--If a person required to file a 
        report under a provision referred to in paragraph (2) 
        fails to file such report at the time and in the manner 
        required by such provision, such person shall pay a 
        penalty of $50 for each failure unless it is shown that 
        such failure is due to reasonable cause.
          (2) Provisions.--The provisions referred to in this 
        paragraph are--
                  (A) subsections (i) and (l) of section 408 
                (relating to individual retirement plans),
                  (B) section 220(h) (relating to medical 
                savings accounts), and
                  (C) section 137(f) (relating to MedicarePlus 
                MSA's).
          * * * * * * *
                              ----------                              


     SECTION 13562 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1993

SEC. 13562. PHYSICIAN OWNERSHIP AND REFERRAL.

  (a)  * * *
  (b) Effective Dates.--
          (1) In general.--Except as provided in [paragraph 
        (2)] paragraphs (2) and (3), the amendments made by 
        this section shall apply to referrals--
                  (A) made on or after January 1, 1992, in the 
                case of clinical laboratory services, and
                  (B) made after December 31, 1994, in the case 
                of other designated health services.
          * * * * * * *
          (3) Promulgation of regulations.--Notwithstanding 
        paragraphs (1) and (2), the amendments made by this 
        section shall not apply to any referrals made before 
        the effective date of final regulations promulgated by 
        the Secretary of Health and Human Services to carry out 
        such amendments.
          * * * * * * *
                              ----------                              


     SECTION 101 OF EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

                    DUTY OF DISCLOSURE AND REPORTING

  Sec. 101. (a)  * * *
          * * * * * * *
  [(f) Information Necessary To Comply With Medicare and 
Medicaid Coverage Data Bank Requirements.--
          [(1) Provision of information by group health plan 
        upon request of employer.--
                  [(A) In general.--An employer shall comply 
                with the applicable requirements of section 
                1144 of the Social Security Act (as added by 
                section 13581 of the Omnibus Budget 
                Reconciliation Act of 1993). Upon the request 
                of an employer maintaining a group health plan, 
                any plan sponsor, plan administrator, insurer, 
                third-party administrator, or other person who 
                maintains under the plan the information 
                necessary to enable the employer to comply with 
                the applicable requirements of section 1144 of 
                the Social Security Act shall, in such form and 
                manner as may be prescribed in regulations of 
                the Secretary (in consultation with the 
                Secretary of Health and Human Services), 
                provide such information (not inconsistent with 
                paragraph (2))--
                          [(i) in the case of a request by an 
                        employer described in subparagraph (B) 
                        and a plan that is not a multiemployer 
                        plan or a component of an arrangement 
                        described in subparagraph (C), to the 
                        Medicare and Medicaid Coverage Data 
                        Bank;
                          [(ii) in the case of a plan that is a 
                        multiemployer plan or is a component of 
                        an arrangement described in 
                        subparagraph (C), to the employer or to 
                        such Data Bank, at the option of the 
                        plan; and
                          [(iii) in any other case, to the 
                        employer or to such Data Bank, at the 
                        option of the employer.
                  [(B) Employer described.--An employer is 
                described in this subparagraph for any calendar 
                year if such employer normally employed fewer 
                than 50 employees on a typical business day 
                during such calendar year.
                  [(C) Arrangement described.--An arrangement 
                described in this subparagraph is any 
                arrangement in which two or more employers 
                contribute for the purpose of providing group 
                health plan coverage for employees.
          [(2) Information not required to be provided.--Any 
        plan sponsor, plan administrator, insurer, third-party 
        administrator, or other person described in paragraph 
        (1)(A) (other than the employer) that maintains the 
        information under the plan shall not provide to an 
        employer in order to satisfy the requirements of 
        section 1144 of the Social Security Act, and shall not 
        provide to the Data Bank under such section, 
        information that pertains in any way to--
                  [(A) the health status of a participant, or 
                of the participant's spouse, dependent child, 
                or other beneficiary,
                  [(B) the cost of coverage provided to any 
                participant or beneficiary, or
                  [(C) any limitations on such coverage 
                specific to any participant or beneficiary.
          [(3) Regulations.--The Secretary may, in consultation 
        with the Secretary of Health and Human Services, 
        prescribe such regulations as are necessary to carry 
        out this subsection.]
          * * * * * * *
                              ----------                              


              SECTION 552A OF TITLE 5, UNITED STATES CODE

Sec. 552a. Records maintained on individuals

  (a) Definitions.--For purposes of this section--
          (1)  * * *
          * * * * * * *
          (8) the term ``matching program''--
                  (A)  * * *
                  (B) but does not include--
                          (i)  * * *
          * * * * * * *
                          (v) matches--
                                  (I) using records 
                                predominantly relating to 
                                Federal personnel, that are 
                                performed for routine 
                                administrative purposes 
                                (subject to guidance provided 
                                by the Director of the Office 
                                of Management and Budget 
                                pursuant to subsection (v)); or
                                  (II) conducted by an agency 
                                using only records from systems 
                                of records maintained by that 
                                agency;
                        if the purpose of the match is not to 
                        take any adverse financial, personnel, 
                        disciplinary, or other adverse action 
                        against Federal personnel; or
                          (vi) matches performed for foreign 
                        counterintelligence purposes or to 
                        produce background checks for security 
                        clearances of Federal personnel or 
                        Federal contractor personnel; [or
                          [(vii) matches performed pursuant to 
                        section 6103(l)(12) of the Internal 
                        Revenue Code of 1986 and section 1144 
                        of the Social Security Act;]
          * * * * * * *
                              ----------                              


     SECTION 6011 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1989

SEC. 6011. PASS THROUGH PAYMENT FOR HEMOPHILIA INPATIENTS.

  (a)  * * *
          * * * * * * *
  (d) Effective Date.--The amendments made by subsection (a) 
shall apply with respect to items furnished 6 months after the 
date of enactment of this Act [and shall expire September 30, 
1994].
                              ----------                              


     SECTION 9305 OF THE OMNIBUS BUDGET RECONCILITATION ACT OF 1986

SEC. 9305. IMPROVING QUALITY OF CARE WITH RESPECT TO PART A SERVICES.

  (a) * * *
          * * * * * * *
  (g) Extension Waiver of Liability Provisions to Hospice 
Programs.--
          (1) * * *
          * * * * * * *
          (3) Effective date.--The amendments made by paragraph 
        (1) shall apply to coverage denials occurring on or 
        after July 1, 1987, and before [December 31, 1995] 
        September 30, 1996.
          * * * * * * *
                              ----------                              


              SECTION 353 OF THE PUBLIC HEALTH SERVICE ACT

                     certification of laboratories

  Sec. 353. (a) * * *
          * * * * * * *
  (d) Requirements for Certificates.--
          (1) * * *
          (2) Exemption of physician office laboratories.--
                  (A) In general.--Except as provided in 
                subparagraph (B), a clinical laboratory in a 
                physician's office (including an office of a 
                group of physicians) which is directed by a 
                physician and in which examinations and 
                procedures are either performed by a physician 
                or by individuals supervised by a physician 
                solely as an adjunct to other services provided 
                by the physician's office is exempt from this 
                section.
                  (B) Exception.--A clinical laboratory 
                described in subparagraph (A) is not exempt 
                from this section when it performs a pap smear 
                (Papanicolaou Smear) analysis.
                  (C) Definition.--For purposes of subparagraph 
                (A), the term ``physician'' has the same 
                meaning as is prescribed for such term by 
                section 1861(r) of the Social Security Act (42 
                U.S.C. 1395x(r)).
          [(2)] (3) Requirements for certificates of waiver.--
                  (A) In general.--A laboratory which only 
                performs laboratory examinations and procedures 
                described in paragraph [(3)] (4) shall be 
                issued a certificate of waiver or have its 
                certificate of waiver renewed if--
                          (i) the laboratory submits an 
                        application--
                                  (I) in such form and manner 
                                as the Secretary shall 
                                prescribe,
                                  (II) that describes the 
                                characteristics of the 
                                laboratory examinations and 
                                other procedures performed by 
                                the laboratory, including the 
                                number and types of laboratory 
                                examinations and other 
                                procedures performed, the 
                                methodologies for laboratory 
                                examinations and other 
                                procedures employed, and the 
                                qualifications (educational 
                                background, training, and 
                                experience) of the personnel 
                                directing and supervising the 
                                laboratory and performing the 
                                laboratory examinations and 
                                other procedures, and
                                  (III) that contains such 
                                other information as the 
                                Secretary may reasonably 
                                require to determine compliance 
                                with this section, and
                          (ii) the laboratory agrees to make 
                        records available and submit reports to 
                        the Secretary as the Secretary may 
                        require.
                  (B) Changes.--If a laboratory makes changes 
                in the examinations and other procedures 
                performed by it only with respect to 
                examinations and procedures which are described 
                in paragraph (3), the laboratory shall report 
                such changes to the Secretary not later than 6 
                months after the change has been put into 
                effect. If a laboratory proposes to make 
                changes in the examinations and procedures 
                performed by it such that the laboratory will 
                perform an examination or procedure not 
                described in paragraph (3), the laboratory 
                shall report such change to the Secretary 
                before the change takes effect.
                  (C) Effect.--Subsections (f) and (g) shall 
                not apply to a laboratory to which has been 
                issued a certificate of waiver.
          [(3)] (4) Examinations and procedures.--The 
        examinations and procedures identified in paragraph 
        [(2)] (3) are simple laboratory examinations and 
        procedures which, as determined by the Secretary, have 
        an insignificant risk of an erroneous result, including 
        those which--
                  (A) have been approved by the Food and Drug 
                Administration for home use,
                  (B) employ methodologies that are so simple 
                and accurate as to render the likelihood of 
                erroneous results negligible, or
                  (C) the Secretary has determined pose no 
                reasonable risk of harm to the patient if 
                performed incorrectly.
          [(4)] (5) Definition.--As used in this section, the 
        term ``certificate'' includes a certificate of waiver 
        issued under paragraph [(2)] (3).
          * * * * * * *
                          IX. DISSENTING VIEWS

                              ----------                              


 Minority Views of the Democratic Members of the Committee on Ways and 
                                 Means

             medicare--our contract with america's seniors

    Medicare is one of the finest achievement of our country. 
All Americans can be justifiably proud that we as a people 
provide health security to those who have retired after a 
lifetime of hard work.
    The enactment of Medicare in 1965 under the leadership of 
President Johnson revolutionized the health security of the 
Nation's senior citizens. In 1963, half the elderly had no 
health insurance because private health insurance companies 
avoided covering the elderly. Many of our seniors could not 
afford the expensive coverage that was available to them, and 
the few policies which were written provided inadequate 
coverage.
    Today, over 99 percent of the elderly are covered. They 
face no discrimination, no risk selection, and no pre-existing 
condition exclusions. Over 6,000 hospitals, 3000,000 
physicians, and 250 health maintenance organizations (HMOs) 
contract with Medicare to provide care to 37 million Americans. 
Medicare is popular with beneficiaries and providers. Polls 
show the American public consistently and strongly support 
Medicare--three-quarters of the under-65 population favor 
having the option to choose Medicare for their health insurance 
coverage. Seniors consistently rate their Medicare coverage 
more highly than non-seniors rate their private coverage.

                   the republican medicare-less plan

    We would not have this proud record of achievement for 
Medicare if the country had listened to the Republican Party. 
The fact that Republicans have voted to slash $270 billion from 
Medicare in order to pay for tax cuts for those who don't need 
them should come as no surprise. The Republican Party has never 
supported the Medicare program.
    The historical record is unmistakably clear--if it had been 
up to the Republican Party, the Medicare program never would 
have been enacted. In 1965, 93 percent of House Republicans 
voted against establishing Medicare. Their attitude hasn't 
changed today. As recently as July 10, 1995, Republican 
Majority Leader Armey said that he believed that Medicare was 
``a program I would have no part of in a free world.''
    Now the Republican majority of the Committee on Ways and 
Means has reported a bill making the largest cuts in the 
history of the Medicare program. And they don't need to.
    For months the Republicans have cried wolf about the so-
called bankruptcy of Medicare--even though the Trustees said it 
was in worse shape last year--a year in which the Republicans 
opposed all efforts to deal with the problem.
    Democrats have dealt with the solvency of the Medicare 
Trust Fund nine times, without fanfare or partisan propaganda. 
This issue is not, therefore, either new or surprising or--as 
Republicans allege so glibly--a ``crisis.'' We all have been 
here before. In 1977, the Trustees of the Part A Trust Fund 
reported that the fund would become insolvent in 1987. By 1984, 
the insolvency date was 1991. Today, the insolvency date is 
2002, due to prudent action by the Congress to keep Medicare 
solvent.
    In fact, the last people who have the right to say anything 
about Medicare and its funding are our colleagues on the 
Republican side. Last year, the Medicare Trustees reported that 
the Fund would be exhausted in 2001. No one on the Republican 
side pointed with alarm to last year's report, although 
insolvency was estimated to be just as imminent, seven years in 
the future.
    Ironically, the only action taken in 1995 thus far relating 
to the solvency of the Hospital Insurance (Part A) Trust Fund 
is approval by the Republicans in the House of Representatives 
of the Republican Contract with America provision which takes 
money out of the Part A Trust Fund through a reduction in the 
amount of Social Security benefits subject to taxation. Over 
$36 billion would be removed from the Fund over seven years 
through this legislation. It is at best disingenuous to wring 
your hands about the future solvency of the Trust Fund when you 
have already voted to take money out of the Fund. We understand 
that the ``Contract'' provision will be combined with this bill 
and voted on again as part of the budget reconciliation 
legislation for this year--the height of hypocrisy.
    In addition, the question of Trust Fund insolvency has 
nothing to do with Medicare's Supplementary Medical Insurance 
program, Part B. The report of the Part B Trustees states that 
Part B is actuarially sound. Therefore, if reductions in 
Medicare are being made solely to ``save'' the Trust Funds, 
there is no reason to cut Part B at all, since Part B's Trust 
Fund doesn't need ``saving.''
    Of course, this bill has nothing to do with ``saving'' the 
Medicare Part A Trust Fund. The huge cuts in Medicare, $270 
billion over seven years, proposed in this bill are far beyond 
any amount that is needed reasonably to extend the solvency of 
the Part A Trust Fund. The bill makes large cuts in Part B and 
takes billions of dollars right out of the pockets of 
beneficiaries. Not one penny of these funds will be paid into 
the Medicare Trust Fund. The dollars will all go into general 
revenue.
    In fact, the current Medicare Trustees, publicly and in 
correspondence with the Congress, have expressed deep concern 
about the Republicans' distorted use of the latest Trustees' 
report. The Trustees and every other responsible authority have 
stated that cuts of the size proposed by the Republicans are 
not needed to address the solvency of the Medicare Trust Fund. 
They have repeatedly noted that a reduction in Part A outlays 
of approximately $89 billion would be sufficient to assure 
solvency at least until 2006.
    So why do the Republicans want to cut three times what is 
needed to assure Medicare solvency? The answer is simple: to 
finance tax breaks for the wealthy. Why do they want to cut 
$140 billion from Part B--$53.6 billion of which comes out of 
the pockets of seniors--when it does nothing to assure Medicare 
solvency? The answer is simple: to finance tax breaks for the 
wealthy. Why did they do it without having a single hearing to 
shine the tiniest flashlight on the details of this bill? The 
answer is that they don't want anyone to know that they are 
gutting Medicare to pay for tax cuts for the wealthiest 
Americans.

   the republican plan does no more for the solvency of part a than 
  democratic substitutes, while slashing medicare three times as much

    The Republicans propose to cut $270 billion from Medicare 
over the next seven years. This is a 24 percent cut in the 
program in 2002. According to their rhetoric, doing so will 
``save'' Medicare. Nothing could be further from the truth. 
Even using the Republicans' own standard, their plan falls 
short.
    As Committee Chairman Bill Archer stated in a press release 
on September 27, 1995, ``any `proposal' that fails to save 
Medicare until the eve of the baby boomer retirement must be 
considered a failure.'' On July 20, 1995, on C-SPAN, 
Representative McCrery said that under the Republican plan 
Medicare ``should remain solvent as far as the eye can see.'' 
Unfortunately, their plan doesn't come anywhere close to 
meeting their own standard when the ``Contract'' revenue loss 
to the Medicare Trust Fund is taken into account. According to 
the actuaries for the Medicare Trust Fund, the Republican plan 
``would extend the life of the HI [Part A] Trust Fund through 
the third quarter of calendar year 2006'' [from a letter dated 
October 11, 1995, to Representative Sam Gibbons from Bruce 
Vladeck, Administrator of the Health Care Financing 
Administration (HCFA), based on data from the Medicare 
actuaries]. 2006 is many years short of the earliest year the 
baby boomers will begin to retire--2011--and it certainly does 
not mean the plan will remain solvent ``as far as the eye can 
see.''
    This result comes from an honest examination of the 
figures. The Republican bill reduces expected Medicare Part A 
spending by $130 billion over the next seven years. However, to 
understand the true impact of Republican proposals on Medicare 
solvency, this amount must be reduced by $36.6 billion, the 
amount which will be lost because the House Republicans voted 
to shrink the amount of Social Security benefits subject to 
income taxation, an action that will rob the Medicare Trust 
Fund of $36.6 billion. Therefore, the net impact of Republican 
proposals on the Medicare Trust Fund is a reduction in spending 
of only $93 billion, virtually the same impact in the 
Democratic Substitute would have had on the Fund if the 
Republicans had not rejected it on a straight party-line vote, 
as the following chart illustrates.




    The trust is now out, and the actuaries agree: the 
Republicans are jeopardizing the health and financial security 
of our families and our parents based on a false promise, and a 
big lie. They are taking three times as much out of Medicare as 
is needed, and they are treating the Medicare Trust Fund as 
though it were a slush fund to pay for tax cuts for the 
privileged few.

                           medicare ``minus''

    When this effort to frighten the public into accepting huge 
cuts in Medicare fails, the Republicans will turn to a new 
smoke screen called ``reform'' in order to justify their 
unnecessary cuts. The ultimate Republican goal is to turn the 
Medicare program into a fractured, unworkable system. Their 
plan will subject seniors to the same kinds of redtape and 
harassment over paying claims which are becoming all too common 
in the private health insurance industry. Medicare's dollars 
will be soaked up by the private sector's profits and huge 
overhead.
    As the Committee plan already makes clear--the Republicans 
will provide vouchers for managed care. The value of those 
vouchers will not keep pace with the cost of benefits, thus 
eroding benefits along with the security seniors have today. 
The ``choice'' which the Republicans provide to seniors is 
based on a false promise because their so-called ``Medicare 
Plus'' plan changes Medicare's contribution to health plans 
into a ``defined contribution'' plan, a fixed-size voucher with 
which to purchase less and less health care.
    The Republican plan sets the total annual growth in the 
size of the vouchers for health plans at 4.7 percent, only a 
little more than one percent above the effects of growth in 
inflation plus growth in 
beneficiaries. Private health insurance premiums are projected 
by the Congressional Budget Office (CBO) to grow at 7.1 percent 
per year over the next several years, a rate 30 percent higher 
than the rate Medicare vouchers can grow under the Republican 
plan. The result is that the Republican voucher quickly will 
buy less and less coverage, since the Medicare growth rates 
allowed under the Republican plan bear no resemblance to actual 
or predicted growth in the cost of health care between now and 
2002. This eventuality is illustrated by the chart below.




    Worst of all, the Republican-generated Medicare growth 
rates are not calculations based on health care cost or the 
needs of beneficiaries. The percentage growth rates for health 
plan payments included in this bill, in the words of the 
Republican staff director of the Health Subcommittee on C-SPAN, 
are the rates ``necessary to meet the requirements of the 
budget resolution.'' In other words, they are arbitrary amounts 
designed to cut Medicare sufficiently to pay for tax breaks for 
those who don't need them. Moreover, as the CBO estimate makes 
clear, these arbitrary percentages are what ``saves'' money in 
Medicare and not the illusionary choice Republicans claim to 
offer beneficiaries.
    When the artificial spending limits included in this bill 
reduce Medicare reimbursement to providers, as they will, 
providers will be allowed to bill beneficiaries for the 
``balance.'' The restrictions of current law on ``balance 
billing'' will not apply when seniors enroll in a plan which 
does not have contracts with its doctors and hospitals, such as 
an indemnity plan or a point-of-service plan. There will be no 
protection for seniors against hidden charges which they will 
have to pay out of their own pockets.
    The Congressional Budget Office has agreed that the 
Republican plan does not offer real choices to beneficiaries. 
CBO's analysis of virtually identical Senate Finance Committee 
Republican plan demonstrates that few additional seniors will 
choose to opt out of traditional Medicare under the Republican 
plan. In fact, CBO's analysis indicates that, of the additional 
11 percent of beneficiaries who will opt out, most will do so 
because they are poor and have lost the protection of the 
present-law Qualified Medicare Beneficiary program under which 
Medicaid pays the Part B premium and other cost-sharing of low-
income Medicare beneficiaries--not because they wanted some 
other ``choice.'' The Republican assault on Medicaid will force 
low-income seniors into managed care only because the cost to 
the seniors will be less, and they won't be able to afford any 
other ``choice.''
    The Republican plan fails in another important way as well. 
Republicans are throwing the doors wide open to every type of 
insurance plan that wants to snare Medicare beneficiaries and 
the premiums they represent. Literally any insurance plan, no 
matter how poorly financed or poorly managed, will be 
considered to have met the standards for health plans to 
contract with Medicare. In other words, there will be no 
standards. The Secretary of the Department of Health and Human 
Services (HHS) will have no recourse but to accept any plan 
desiring to come into Medicare. The problems with pre-paid 
health plans in California in the 1970's and in Florida in the 
1980's will be dwarfed by this reckless scheme of the 
Republicans.
    It's even more troubling that the Republicans rejected a 
Democratic amendment, on a party-line vote, to add to their 
plan basic consumer protections for Medicare beneficiaries. The 
amendment, if adopted, would have saved beneficiaries from on-
going abuses by private plans that have been documented by the 
HHS Inspector General in an extensive survey which identified 
several problem areas with managed care plans. The amendment 
was supported by the American Association of Retired Persons 
(AARP), the National Committee to Preserve Social Security and 
Medicare, and the Consumers Union, but the Republicans chose 
not to add these needed protections to their bill.
    The Republicans also appear to wish to punish the HCFA 
which has run Medicare for almost 20 years in a remarkably 
efficient manner. Under current law, HCFA administers both 
Medicare's fee-for-service and managed care programs. The 
reported bill would split HCFA, requiring a new agency within 
HHS to administer the MedicarePlus program. Such a provision 
cannot be justified from an administrative or policy 
perspective. Since the basic benefits and entitlement under 
traditional Medicare and MedicarePlus are the same, split 
responsibility would accomplish nothing other than generating 
confusion among beneficiaries who move between programs and 
increasing administrative costs because of duplicative overhead 
expenses. The inevitable disruption caused by splitting HCFA 
would occur at the same time that the new agency would be 
attempting to meet the extremely ambitious implementation 
schedule for the MedicarePlus program included in the bill.
    Elsewhere in the bill, future HCFA Administrators' status 
would be downgraded from Presidential appointees to appointees 
of the HHS Secretary. Although, under the reported bill, the 
HCFA Administrator would no longer be in charge of the private 
health plan portion of Medicare, the ``residual'' fee-for-
service program left under HCFA's administration would still 
dwarf most other federal programs and would still be the 
largest health insurance program in the world. According to 
CBO's estimates, the vast majority of Medicare beneficiaries 
would still be in the fee-for-service program by 2005. It is 
hard to fathom why the Republicans would want such a key 
appointment no longer subjected to Senate approval. Apparently, 
their pique has gotten in the way of their good judgment.

                        medical savings accounts

    Medical savings accounts (MSAs) for the Medicare population 
is one of those ideas that comes along from time to time which 
appears reasonable at first, but fails to withstand the test of 
detailed scrutiny. Allowing beneficiaries to opt for a high-
deductible plan coupled with a deposit into a medical savings 
account is risky, untested, and expensive for Medicare. In 
fact, under the Republican plan, it constitutes a raid on the 
Medicare Trust Fund, which the Republicans say they are trying 
to preserve.
    Every legitimate health care policy expert, including the 
Congressional Budget Office, has concluded that the MSA option 
would result in extra costs for the Medicare program, resulting 
in a weakened Medicare Trust Fund. The CBO says that the MSAs 
in this bill will cost Medicare $2.3 billion--dollars which 
would otherwise have gone to purchase health services for 
seniors. This works out to $988 in extra Medicare costs per 
year per beneficiary choosing this option. Republicans claim 
that MSAs mean more choices for seniors, but offering a choice 
that threatens the actuarial soundness of the Medicare program 
will soon result in no choices at all.
    Even Republican expert Gail Wilensky, Chair of the 
Physician Payment Review Commission, expressed grave doubts 
about the use of MSAs in the Medicare system when she testified 
before the Committee on Ways and Means on September 29, 1995. 
Since only the healthiest and wealthiest could afford to gamble 
with such a high-deductible policy, the MSA proposal would 
actually transfer scarce Medicare funds to the healthy, while 
leaving less to spend on the sick. Because there is no reliable 
method to adjust payments to health plans for the different 
risks posed by each Medicare beneficiary, experts have 
testified that MSAs could plunge Medicare into a ``death 
spiral'' as younger, healthier, low-cost beneficiaries chose 
MSAs, leaving sicker, older, more costly seniors in traditional 
Medicare. As the following chart illustrates, Medicare's 
current expenditure patterns makes this outcome all too likely.




    Proponents of MSAs--i.e., those who plan to reap huge 
profits from their implementation--have made outrageous claims. 
Their claims are unsubstantiated, if not laughable. One group 
financed by the MSA lobby even prepared a report asserting that 
offering medical savings accounts would save Medicare $275 
billion over the next 7 years. In contrast, impartial analysts 
like those at CBO have concluded that MSAs will cost Medicare 
money.
    Claims by MSA lobbyists have been refuted by health care 
experts--like Joseph White of the Brookings Institution and 
Jack Rodgers of Price Waterhouse--that do not have a financial 
interest in seeing MSAs included in this legislation. In 
contrast to the hired guns of the MSA lobby, a recent study 
conducted by the health policy firm of Lewin-VHI concluded 
that: ``The MSA model as currently conceived for Medicare is 
actuarially unsound because it will result in a net increase in 
Medicare program costs.''
    The Medicare program would lose money because healthier 
people would choose the MSA option, while Medicare would lack 
the ability to adjust payments accordingly. The Lewin-VHI 
report says: ``Medicare would pay MSAs roughly twice what the 
predominantly healthy MSA enrollee population would have cost 
under the current Medicare program,'' even if the current 
adjustments for age, sex, and disability are made to plans.
    Perhaps worst of all, the Republicans rejected on a 
straight party-line vote, a Democratic proposal at least to 
pilot-test this reckless approach to make sure that if works at 
all. After all, report after report emphasizes that MSAs and 
Medicare don't mix, although many true believers continue to 
assert that they will.
    In the face of a total lack of evidence to support the 
belief that MSAs will reduce health expenditures, and 
overwhelming evidence that suggests just the opposite, the 
Republicans were not willing to adopt a prudent, reasonable 
course that would avoid a potentially serious drain on the 
Medicare Trust Fund. Instead, they chose to reward their 
wealthy contributors and the special interests who want to make 
money off of Medicare.

              republican anti-fraud proposals are a fraud

    The Republican proposals regarding fraud are themselves 
fraudulent because they make it easier for unethical and 
criminal provider to commit fraud, and they make it harder for 
the government to prosecute those fraudulent actions.
    Fraud and abuse are among the American public's biggest 
concerns about the health care financing system. There is 
little disagreement that fraud, waste, and abuse in our health 
care system--both private and public--is excessive. The General 
Accounting Office (GAO) estimates that fraud and abuse in the 
health care industry accounts for an estimated 10 percent of 
our yearly private and public health care expenditures.
    Based on this estimate, fraudulent payments were nearly $94 
billion in 1994. That amounts to approximately $258 million a 
day or $11 million every single hour. Contrary to the 
Republican view, and as GAO has stated in testimony to the 
Committee, Medicare leads the private sector in its health care 
anti-fraud and -abuse efforts. With the Republican proposal, we 
would actually be inhibiting proven enforcement activities and 
letting providers get away with false and fraudulent claims for 
Medicare payment.
    All three of the Federal Government's law enforcement 
officers in the health field have spoken out against the 
Republican plan. In letters to the Committee, the Attorney 
General, the HHS Inspector General, and the Comptroller General 
have each written to oppose the Republican plan. Copies of 
their letters are included at the end of these views.
    In the words of HHS Inspector General June Gibbs Brown, the 
Republican plan ``would cripple the efforts of law enforcement 
agencies to control health care fraud and abuse in the Medicare 
program and to bring wrongdoers to justice.'' The Republican 
plan would:
          Make the existing civil monetary penalty and anti-
        kickback laws considerably more lenient and place an 
        insurmountable burden of proof on the Government to 
        punish illegal kickbacks to providers;
          On the one hand, propose an increase in the amounts 
        of civil monetary penalties, while on the other hand, 
        significantly curtail enforcement of these sanction 
        authorities by raising the level of culpability which 
        must be proven by the Government in order to impose any 
        penalty;
          Relieve providers of the legal duty to use reasonable 
        diligence in ensuring that claims they submit to 
        Medicare are true and accurate; and
          Divert to private contractors scarce resources 
        currently devoted to law enforcement against fraud and 
        abuse.
    At the Committee's markup, Republican members refused, on a 
straight party-line basis, to vote for a tough anti-fraud 
package offered by Democrats which would have built upon 
Medicare's proven law enforcement strategy and improved it by 
increasing penalties, providing more funding for the Inspector 
General, providing for mandatory exclusion from Medicare for 
wrong-doers, and providing for a private right-of-action 
against fraudulent providers.
    The only response offered by Republicans was that they were 
offering a new voluntary disclosure program and were providing 
an anti-fraud and abuse hotline. Ignorance is no excuse, but 
Republican members need to call 1-800-HHS-TIPS (1-800-447-8477) 
to reach the existing Medicare hotline, to find out that their 
proposal offers nothing new, and would weaken efforts to 
squeeze every dime of health care fraud out of Medicare.
    Republicans also want to gut Medicare's protections against 
physician self-referral, the practice of physicians referring 
their patients to providers with which the physician has a 
financial relationship, whether due to ownership or due to a 
compensation arrangement. Without a doubt, physician self-
referral is bad for the public and bad for the patient. Just 
like anyone else, physicians are vulnerable--vulnerable to 
greed, vulnerable to pay-offs, and vulnerable to temptation. 
Study after study has shown that this practice inevitable 
encourages unnecessary duplication and overutilization of 
facilities and services.
    Unethical self-referral arrangements provide doctors with 
powerful incentives to bend their professional judgment. 
Without laws to prohibit abusive arrangements, doctors will 
continue to drift toward the opinion that medicine is just a 
business, and patients are theirs to be bought and sold. 
Physician self-referral has no inherent social value; it biases 
the judgment of physicians and compromises their loyalty.
    As recently as September 20, 1995, the Journal of the 
American Medical Association stated that ``the results of this 
study showed that physician self-referral of beneficiaries 
uniformly led to significantly higher utilization of imaging 
procedures by all physician specialties  *  *  *.'' Physician 
self-referral results in an overall significant increase in 
cost to the patient and to the Treasury in higher Medicare and 
Medicaid payments. CBO estimated in 1993 that the expansion of 
the law to cover an extensive list of additional health 
services would save the Medicare program $350 million over five 
years.
    The CBO estimate for this bill demonstrates that self-
referral costs money--the gutting of self-referral protections 
in the Republican bill is estimated to cost $400 million over 
seven years.
    The proposed Republican changes to the physician self-
referral law are shocking and disappointing. They demonstrate a 
callous attitude toward beneficiaries and a reckless approach 
to cost savings. The bill creates numerous loopholes in the 
current law and deletes several sections that apply to well-
documented areas of abuse.
    The Republicans plan on self-referral will promote fraud, 
waste, and abuse. The quacks of the Nation will laugh all the 
way to the bank. Under this plan, a physician could get a cut 
of the money from every test he or she orders. There would be 
no limit--we would return to the days of patients receiving 
numerous unnecessary and harmful tests at great cost to the 
health care system and beneficiary.
    Under this plan, hospitals could enter into largely 
fictitious contracts with physicians (paying large amounts of 
money to doctors who have high-volume referrals as a way to 
encourage increased referrals). Under this plan, a physician in 
a shared facility arrangement could be on vacation in Hawaii 
drinking a margarita on the beach and fall under the 
Republican's definition of ``directly supervising'' the tests.
    The list of services subject to the ban on referrals would 
be reduced, ignoring studies that have found overutilization 
and abuse resulting from self-referral. For example, radiology 
and ultrasound tests would be dropped from the list even though 
GAO in 1994 found that 22 percent more ultrasound services and 
22 percent more echocardiograms were performed in physician-
owned versus non-physician-owned facilities. Radiation therapy 
would be dropped despite a study published in the New England 
Journal of Medicine in 1992 which found that radiation therapy 
centers developed as joint ventures with referring physicians 
had costs 40 to 60 percent higher than non-joint-venture 
facilities.
    Ironically, the same Congress that wants to ``empower'' 
States would preempt existing State laws that are more 
restrictive in prohibiting self-referral. If this bill becomes 
laws, it is an open invitation for physicians to participate in 
unethical and immoral behavior.

    ripping the safety net--republicans place critical providers in 
                                jeopardy

    Cutting more than $215 billion out of provider and health 
plan payments, as the Republican plan does, will cause severe 
disruption in health services, particularly for safety-net 
providers who take care of those without coverage.
    The Republican bill directly assaults these providers 
through cuts in disproportionate share payments to hospitals 
that care for the poor and the medically indigent, cuts in the 
indirect medical education adjustment for hospitals which carry 
the extra costs of training our Nation's doctors, and because 
of the overall level of cuts on hospitals and doctors. Although 
the wealthy hospitals in suburban areas may survive this 
assault, the inner-city and rural safety-net hospitals may not.
    It was bad enough that last year Republicans on this 
Committee voted unanimously to reject legislation providing 
Americans with the health security that every other advanced 
nation in the world provides to its citizens, leaving 41 
million of our fellow citizens without health insurance. This 
year, Republicans want to cut $182 billion out of Medicaid, 
with a big chunk of those savings coming from disproportionate 
share payments under that program. Now Republicans want to cut 
the payments Medicare makes to ensure that safety-net hospitals 
can keep their doors open. How on earth do Republicans expect 
these hospitals to survive? Perhaps the answer is that they 
don't care.
    It is hard to see how these hospitals and clinics will be 
able to continue providing services to 41 million uninsured 
Americans when all sources of support for them are cut off. 
Many of these providers are already in serious financial 
trouble--before all of these additional cuts hit them. The 
hospitals in this group have the lowest margins of revenue over 
costs of any type of hospital, a full 25 percent below the 
average, and the highest number of hospitals of any type with 
overall negative margins. These hospitals have physical plants 
which are, on average, more than 25 years old, as compared to 7 
years for other hospitals.
    Undoubtedly the conventional wisdom is that this is an 
issue only for poor people, or for certain parts of the inner 
city or for rural areas. But, which hospitals provide the 
trauma services at the medical centers where the ambulances 
will take our citizens who have accidents on the freeways? In 
Chicago, they will be taken to Cook County. In Los Angeles, 
they will be taken to L.A. County/U.S.C. Medical Center, the 
hospital which tried recently to send out pink slips to over 
2,000 workers in order to solve its financial problems. If 
these hospitals fall apart, all Americans will suffer.
    The Republicans' own words from last year's debate on 
health care reform make the case that the cuts in provider 
payments in this bill are reckless, too high, and too heavily 
focused on the hospitals and clinics who cannot survive them. 
These comments were made about a Democratic bill which reduced 
Medicare spending almost 40 percent less than this Democratic 
bill which reduced Medicare spending almost 40 percent less 
than this Republican bill, and would have invested every penny 
of that spending back into the health care system by assuring 
that every American was covered, and provided that every 
hospital and every doctor would be paid a reasonable amount for 
their services.
    About those smaller cuts, Congressman Archer said on June 
25, 1994, on C-SPAN: ``Make no mistake about it for the elderly 
in this country, [these cuts are] going to devastate their 
program under Medicare,'' and in another statement, ``I just 
don't believe that quality of care and availability of care can 
survive these additional cuts. And that is the price that is 
going to have to be paid to pay for these cuts.''
    Congressman Jim McCrery said that same day on C-SPAN: ``I 
would love to believe that we could achieve the level of cuts 
you have in this bill * * *. But history tells us that this 
isn't possible. And I think we are just playing games here, we 
are just making the numbers match. That's all Democrats have 
done in your bill to make it revenue neutral. You have just 
estimated the number needed from Medicare to make the numbers 
match, and I think the public understands that.''
    Perhaps Congressman McCrery should review the percentage 
growth rates specified for Medicare in the Republican bill, and 
their uncanny resemblance to the percentage growth allowed 
under the Budget Resolution in order to finance the Republican 
tax cuts--the numbers match.
    And from the ``Minority Views'' included with the Committee 
report on health care reform: ``For more than a decade Congress 
has cut back on payments to doctors and hospitals until they no 
longer cover the costs for Medicare patients--and the 
additional massive cuts in reimbursement to providers proposed 
in this bill will reduce the quality of care for the Nation's 
elderly. There will be no place else to shift.''
    Apparently, Republicans now believe that a far larger set 
of cuts will not ``reduce'' the quality of care for the 
Nation's elderly.

 The Republican ``Black-Box'' Cuts in Payments to Doctors and Hospitals

    The Republican plan also incorporates a ``black-box'' 
mechanism requiring even more cuts if Medicare spending does 
not meet the arbitrary targets set forth in the Republican 
budget resolution. The so-called ``fail safe'' mechanism in the 
bill is a smoke screen for further large cuts in reimbursements 
to providers, without any opportunity for Congress, providers, 
or the public to understand the impact of the cuts on access or 
quality of service.
    The $37 billion in cuts caused by the black-box mechanism 
would be on top of the $148 billion the Republican plan already 
takes from payments for provider services. The so-called 
``fail-safe'' mechanism only affects the fee-for-service 
system. It is obvious that slashing reimbursements for doctors 
who stay in the basic Medicare fee-for-service system is going 
to result in more and more doctors moving out of traditional 
Medicare and into Provider Service Organizations, where the 
physicians can get out from under State regulation and where 
they can balance bill patients to make up for the reductions in 
Medicare payments. The end result is that Medicare 
beneficiaries who stay in traditional Medicare so that they can 
keep their choice of doctor are going to find their doctors 
leaving traditional Medicare without them.
    The ``fail-safe'' is flawed in another important way as 
well. Under the system, Medicare spending would be capped at a 
flat dollar amount, which would increase at an average annual 
rate of 4.7 percent per beneficiary, without any adjustment for 
changes in the underlying inflation rate or for changes in the 
health status of the Medicare population. If a flu epidemic 
were to occur, or if the underlying inflation rate were to 
change, Medicare would be locked into the straight-jacket 
imposed by these arbitrary and extremely low caps. As has 
already been noted, these rates have nothing to do with the 
needs of the health care financing system--the growth rates are 
those into which the Budget Committee decided Medicare had to 
be shoe-horned in order to finance a tax cut for the privileged 
few. In fact, an examination of the annual rates demonstrates 
the completely arbitrary nature of the ''fail-safe'' mechanism, 
as the following chart illustrates:




    Perhaps worst of all, the program is capped after 2002 at a 
flat annual growth rate of 5 percent per beneficiary, no matter 
what happens to inflation or anything else between now and that 
relatively far-off date. If the underlying inflation rate were 
to increase beyond its currently forecasted rate of around 3 
percent to perhaps 6 or 7 percent, a rate well within the 
memory of most Americans, Medicare would be completely starved 
for adequate funding under the Republican plan. Whether that 
turns out to be too much to pull out of the system without 
affecting access and quality is evidently irrelevant.

             Turning Back the Clock on Nursing Home Reform

    The Republicans want to turn back the clock on protecting 
seniors from abuse in nursing homes. They have decided to 
repeal the nursing home reform standards enacted in 1987 and, 
instead, rely mostly on States to supervise nursing homes.
    Prior to the enactment of the nursing home reform 
amendments of 1987, the States had substantial authority to 
protect senior citizens living in nursing homes. During this 
time, when States were entrusted with the safety and welfare of 
our most vulnerable population, there were countless GAO 
reports, public hearings, and sen- 
sational and atrocious newspaper stories documenting the abuse 
of nursing home residents.
    The failure of States to prevent these atrocities is what 
led to the enactment of the 1987 law. The 1987 nursing home 
reform amendments put in place minimum Federal standards 
designed to safeguard the well-being of elderly and disabled 
Americans living in nursing homes. These amendments were 
heralded by consumer groups, State regulators, and others 
concerned about long-term care. In fact, no one, not even the 
nursing home industry, actively opposed these provisions.
    Despite the consensus about the need to improve the quality 
of care in nursing homes; despite the improvements that have 
been made as a direct result of this law; despite the absence 
of any reports, hearings, or debate about the necessity for 
making modifications to these provisions, the Republican 
proposal will totally dismantle this landmark legislation.
    The nursing home reform regulations have had the following 
results;
          A 25-percent reduction in hospital use by nursing 
        home residents, without increases in mortality and with 
        decreases in functional decline;
          A 24-percent increase in the accuracy of nursing home 
        residents' medical records;
          A significant improvement in patient well-being, 
        including a 25-percent decrease in the use of 
        restraints and a 28-percent decrease in the percentage 
        of residents who are left idle and unmoving in their 
        beds;
          Medicare savings of more than $2 billion annually as 
        better nursing home care reduces hospitalizations.
    The 1987 law ensured that nursing home residents have the 
right to be free from physical restraints. This protection is 
missing from the Republican bill. The 1987 law ensured that 
nursing home residents have the right to be free from over-
medication, or chemical restraints. This protection is missing. 
The 1987 law ensured that nursing home residents have the right 
to pick their own doctor and be informed about their medical 
care. This protection is missing. The 1987 law protected 
nursing home residents from being transferred against their 
will. This protection is missing from the Republican plan.
    In 1986, the Institute of Medicine of the National Academy 
of Sciences conducted a comprehensive, non-partisan year-long 
study of the quality of care in nursing homes. After a thorough 
investigation, they concluded: ``[a] stronger Federal 
leadership role is essential for improving nursing home 
regulations because not all State governments have been willing 
to regulate nursing homes adequately unless required to do so 
by the Federal government.'' That conclusion was right then, 
and it is right now.

                     The Lockbox That Isn't Locked

    The Republicans claim that their creation of a Medicare 
``lockbox'' protects Medicare savings from paying for tax cuts 
for the wealthy few. The lockbox is nothing but a sham, a 
superficial budget gimmick to try to fool the American public.
    They have written a provision that is an empty facade, an 
accounting trick. If the lockbox was genuinely intended to 
prevent savings created by cutting Medicare from paying for the 
$245 billion Republican tax cut, it is a miserable failure. It 
accomplishes nothing but a few accounting entries on the 
Department of the Treasury's books.
    The Republicans apparently think that by simply depositing 
savings in a separate account, they can disguise the truth with 
accounting entries. They have ignored the fact that money is 
fungible--which Government account it is put into or taken out 
of just doesn't matter. Simply put, the Government must pay for 
what it does. It doesn't matter which ``checking account'' we 
use.
    Republicans are quite sensitive, as well they should be, 
about the juxtaposition of Medicare cuts and tax cuts. The 
budget plan they put forth leaves no doubt about the fact that 
the Medicare cuts are necessary to pay for the tax cuts.
    Democrats have focused on the facts: the Republican budget 
does not balance unless the Medicare cuts are included. If the 
Republicans' dual goals of cutting taxes and balancing the 
budget were satisfied without Medicare cuts, it would mean that 
the tax cuts had genuinely been funded through other sources. 
That is not true. The Medicare cuts are essential to the total 
tally. The Republican budget-balancing act relies critically on 
the Medicare cuts.
    Why is that so? Because the Republican budget plan includes 
a $245 billion tax cut, most of which would benefit the 
wealthy. Without that tax cut, the Republicans' budget would 
balance without the need for the $270 billion in Medicare cuts 
that are reflected in this bill.
    Republicans have two choices: find other ways to pay for 
their tax cut or fall short of their goal of a balanced budget. 
Those are the only ways to ensure that the Medicare cuts do not 
pay for tax cuts. The American people understand this. They 
deal with this reality every day in their household budgets. If 
your income goes down, you must curtail your expenditures to 
make up the difference. The Republicans are intentionally 
causing the Government's income to go down by cutting taxes by 
$245 billion. In order to make up for this in the context of 
balancing the budget, they must curtail the Government's 
expenditures.
    The Republicans have chosen a heartless way to do so: they 
will pay less for health care for seniors and disabled 
Americans. The Republican Medicare plan will make health care 
more expensive and less available for seniors and the disabled. 
That would be unnecessary if they did not have to make up the 
difference for an unnecessary tax cut.
    Even the structure of the lockbox itself belies the 
Republicans' claims. The lockbox is a new federal trust fund. A 
trust fund is nothing more than another Government account in 
the Treasury. The bill and the Republican rhetoric make it 
sound as if no spending is allowed out of this trust fund. 
However, the bill allows borrowing from the trust fund. In 
fact, the bill requires the trust fund to lend to the 
Department of the Treasury. Treasury will certainly need these 
additional funds, since it will be short $245 billion because 
of the Republican tax cut! Medicare savings not only go into 
the trust fund, they go right through the trust fund and into 
the hands of wealthy taxpayers who will benefit from the 
Republican tax cut. The only thing left in the trust fund will 
be IOUs.
    The lockbox is an empty gesture. It has no teeth. It is an 
attempt to mislead the American public. That attempt will not 
succeed, we are sure. People are smarter than that.




                  a responsible democratic alternative

    Democrats proposed a sane and responsible alternative for 
Medicare in the Committee but was rejected on a straight party-
line vote. The Democratic alternative contains a series of 
balanced reforms which would assure the solvency of the 
Medicare Trust Fund to exactly the same year as the Republican 
policies do--2006--but it would do so without taking three 
times what is needed from Medicare.
    The Democratic plan starts with a responsible policy on 
hospital payments. Medicare is the single largest insurer in 
the United States today. Reductions in payments to providers 
under Medicare must be carefully planned and implemented to 
avoid severe negative consequences for Medicare beneficiaries 
and the American taxpayer. Excessive reductions in hospital 
costs--like those proposed by the Republican majority--could be 
counterproductive, negatively affecting the quality of care, 
reducing access to care, and resulting in higher costs for the 
private sector. Little would be accomplished by unnecessarily 
blunt reductions in Medicare payments to hospitals. Our most 
vulnerable hospitals--those that serve a large share of the 40 
million Americans who are uninsured--would carry an unfair 
burden.
    Under the Democratic plan, reasonable reductions would be 
made in hospital payments. Furthermore, there would be no 
reductions in payments made to compensate hospitals that care 
for a disproportionate share (DSH) of the uninsured. In 
addition, funding for DSH hospitals, now paid to HMO's, would 
be paid directly to these high-indigent-care hospitals.
    The Democratic plan would retain essential protections for 
Medicare beneficiaries in nursing homes. In addition, the 
substitute would revamp the nursing facility reimbursement 
system through a series of prudent steps, including: (1) 
extending the skilled nursing facility (SNF) cost limits; (2) 
establishing a prospective payment system to control costs; and 
(3) reforming SNF transfer policies.
    Efforts to control Medicare spending require that limits be 
placed on reimbursements to all providers, including 
physicians. Since the Nation's doctors have been supportive of 
the payment reforms included in H.R. 2425, the Democratic 
alternative includes those reforms with very slight 
modifications.
    The Republican majority has proposed an unprecedented 
seven-year freeze on payments for clinical laboratory services, 
durable medical equipment, and ambulatory surgery, raising 
questions about whether these providers will, in the future, 
continue to serve Medicare beneficiaries. In addition, the 
Republican plan halts the steady progress Democrats have made 
over the past decade in improving preventive benefits--under 
the Republican plan, no new preventive benefits are offered, 
despite strong evidence that the basic Medicare benefit package 
needs improvement in this area.
    The Democratic alternative offers a package of balanced 
changes combined with modest program improvements, including: 
(1) imposing a two-year freeze on clinical labs, durable 
medical equipment, and ambulatory surgery; (2) reducing 
effective beneficiary copayments for outpatient services by 
correcting the payment formula; and (3) adding new services to 
prevent breast, colorectal, and prostate cancer and the 
complications from diabetes.
    Fully 83 percent of Medicare expenditures are for 
beneficiaries with incomes of less than $25,000 per year. 
Clearly, beneficiary premiums and copayments should be 
increased only as a very last resort. These senior citizens can 
ill-afford to pay any increase in the Part B premium, however 
small. Under the Democratic plan, Medicare beneficiaries are 
protected.
    The following chart shows the premium amounts under current 
law, the Republican proposal (H.R. 2425), and the Democratic 
plan:

                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                            1995     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
Current law.............................      $46      $43      $48      $53      $55      $57      $59      $61
Republican plan.........................       46       54       57       60       64       72       78       87
Democratic alternative..................       46       46       47       51       52       54       56       58
----------------------------------------------------------------------------------------------------------------

    Medicare beneficiaries currently select either traditional 
fee-for-service or an HMO for the delivery of their health 
care. Under the Democratic plan, additional managed care 
choices would be provided, including preferred provider 
organizations (PPOs), point-of-service (POS) plans, and 
provider service organizations.
    Prudent reforms are needed in Medicare's policies for 
reimbursing the costs of graduate medical education. Instead, 
the Republican majority has chosen to slash support for 
hospitals dedicated to training the next generation of health 
professionals. Under the Democratic substitute, only the needed 
reforms would be made. Specifically, the plan would establish a 
graduate medical education trust fund with funds for teaching 
hospitals, now paid to HMO's, deposited into the new fund. A 
commission on graduate medical education would also be 
established to develop a method for assuring that academic 
medical centers train the types of physicians that will be 
required to meet the Nation's health needs. In addition, a 
number of needed improvements would be made in Medicare 
policies for reimbursing the costs of graduate medical 
education, including freezing the total number and number of 
non-primary-care residency positions reimbursed under Medicare.
    Payments for home health services have been one of the 
fastest growing components of Medicare since the late 1980's. 
In fact, outlays for home health services more than quintupled 
between 1987 and 1994. Reforms are needed to control the growth 
in expenditures. Under the Democratic substitute, payments for 
home health services, over time, would shift from cost-based 
retrospective reimbursement, to a prospective payment system.
    A commission would be established to analyze the health 
status of the Medicare-eligible population, make 
recommendations on actions to improve the health of that 
population, analyze the effects of changes in Medicare on the 
private health financing system, examine the impact of the 
increase in the eligible population occurring after 2010, and 
make recommendations to the Congress on actions to preserve the 
program during that period.
    The Democratic plan would fill the holes in the Republican 
fraud-detection proposal by strengthening Federal anti-fraud 
and -abuse efforts through increased funding for the HHS 
Inspector General and for payment safeguards to fight 
fraudulent claims for payment.
    Most importantly, the Democratic plan preserves Medicare 
without increasing premiums, and without using Medicare's trust 
fund like a slush fund so that people who are already among the 
very richest can add to their assets.
    Unfortunately, it is probably true that facts will not sway 
many on the Republican side. The very idea that the Federal 
Government actually runs a program as efficiently and 
effectively as it runs Medicare must keep them up at night. 
They have a childlike faith that ``managed care'' or 
``entrepreneurial creativity'' will yield huge savings for 
Medicare, or at least help finance their ill-conceived tax 
cuts.
    Well, that's not what is going to happen. These cuts will 
hurt, and they will hurt badly. Real people--hard-working 
Americans who have paid into Medicare for years and years--
won't get the benefits they were promised. Real hospitals, real 
rural clinics, and real community health centers will go 
bankrupt, and the safety-net system which provides care to the 
medically indigent will be destroyed.
    Mindless slashing of Medicare will only disrupt the health 
services on which America's seniors depend. It is the 
vulnerable parts of the health system, such as inner-city and 
rural hospitals, which would bear the brunt of that approach.
    For 30 years we have been working successfully to uphold 
the true contract with America--Medicare. We have not, and will 
not, agree to breaking that contract in order to finance 
today's Republican tax cuts for the wealthiest Americans. 
Medicare is not about to fall off a cliff--we'll fix any 
problems that come up as we always have. Most importantly, we 
will do everything in our power to defeat this reckless 
Republican plan.
                                   The Secretary of
                                 Health and Human Services,
                                   Washington, DC, October 3, 1995.
Hon. Sam Gibbons,
Ranking Member, Committee on Ways and Means, House of Representatives, 
        Washington, DC.
    Dear Congressman Gibbons: This letter presents the 
Administration's views in strong opposition to H.R. 2425, ``The 
Medicare Preservation Act of 1995.''
    Medicare reform should promote efficiency, improve quality 
of care, expand beneficiary choice, fight fraud and abuse, and 
update aspects of the program to reflect current developments 
in the health care delivery system. The Clinton Administration 
supports this kind of Medicare reform.
    ``The Medicare Preservation Act of 1995,'' however, cuts 
the Medicare program by $270 billion over the next seven years, 
far beyond what is necessary to safeguard the Medicare Part A 
trust fund and far beyond what could be absorbed by hospitals 
and providers without harming beneficiary access and quality of 
care. H.R. 2425 imposes new and heavy burdens, both direct and 
hidden, on Medicare beneficiaries, and it opens up new avenues 
for health care fraud and abuse.
    Because it needlessly and recklessly threatens the future 
of Medicare in these ways, I will strongly recommend that the 
President veto H.R. 2425, ``The Medicare Preservation Act of 
1995'' if it reaches his desk in its current form.

           medicare spending cuts in h.r. 2425 are excessive

    H.R. 2425 cuts $270 billion from Medicare spending over the 
next seven years. While Republican Members of Congress justify 
this level of spending cuts as necessary to ``save'' the 
Medicare Part A Trust Fund, only a fraction of these reductions 
would actually be returned to the Part A trust fund. Most of 
the cuts in H.R. 2425--$140 billion over seven years--are in 
Medicare Part B. None of these savings would strengthen the 
Part A trust fund. Of the $130 billion in Part A cuts, which 
would be returned to the Part A trust fund, $36 billion would 
be needed to offset trust fund revenue losses caused by action 
taken by House Republicans earlier this year.\1\ Consequently, 
the $270 billion Medicare cuts in H.R. 2425 yield only a net 
$93.4 billion in savings to strengthen the Part A trust fund.
    \1\ This spring, the House of Representatives voted to repeal a 
portion of the Social Security payroll tax revenue which was dedicated 
to the Medicare Part A trust fund under the Omnibus Budget 
Reconciliation Act of 1993.
---------------------------------------------------------------------------
    The legislation seeks to obscure this fact by establishing 
a so-called ``lock box'' that would deposit remaining savings 
from H.R. 2425 into a new trust fund. It has been claimed that 
the ``lock box'' will prevent excess Medicare savings from 
financing the Republican tax cut for the wealthy. However, 
under the Congress' own budget rules these monies would, in 
fact, offset the cost of the tax cut.
    Further, H.R. 2425 imposes $54 billion in new financial 
burdens on beneficiaries in the form of higher Medicare Part B 
premiums. Most of this increase results from setting the 
Medicare Part B premium to cover 31.5 percent of program costs. 
This increase is unnecessary and excessive and does nothing to 
strengthen the Medicare Part A trust fund. In addition, higher 
income Medicare beneficiaries will see their Part B premiums 
more than triple. H.R. 2425 then compounds these direct new 
burdens on beneficiaries by many hidden cuts that will force 
them, over time, to pay much more for their health care 
services.

            h.r. 2425 offers false choice and false promises

    Though it claims to offer beneficiaries a broader choice of 
health plan options, H.R. 2425 actually creates divisions and 
inequalities within Medicare. I am concerned that it will force 
beneficiaries to pay more or make do with less.
    H.R. 2425 establishes a new program, called MedicarePlus, 
which will be available in addition to traditional, fee-for-
service Medicare. Alternative fee-for-service and managed care 
plans will be offered under MedicarePlus, as will new types of 
specifically structured health plans such as provider sponsored 
organizations (PSOs), medical savings accounts (MSAs), and 
association plans. Republicans promise Medicare beneficiaries 
will have free choice between traditional Medicare and all the 
plan options under MedicarePlus. However, the legislation 
applies distinctly uneven rules to Medicare and MedicarePlus 
with the effect of making traditional Medicare much less 
attractive to providers than MedicarePlus. I am concerned these 
incentives, along with the provision of the bill that applies 
the ``failsafe'' mechanism of additional cuts only to the 
traditional Medicare program, would reduce the willingness of 
providers to serve beneficiaries in traditional Medicare. This 
will restrict beneficiary choice rather than enhance it.
    I am also concerned that MedicarePlus, as structured in 
H.R. 2425, would promote adverse risk selection that could 
increase costs for the traditional Medicare program. We do not 
believe that it is appropriate to use Medicare beneficiaries to 
experiment with new, untested concepts that could weaken the 
program.
    Traditional Medicare protects beneficiaries from ``balance 
billing,'' the practice whereby providers charge beneficiaries 
more than Medicare approves. Traditional Medicare permits no 
balance billing by hospitals and only limited balance billing 
by physicians. However, balance billing will be widely 
permitted under MedicarePlus plans. Providers in fee-for-
service MedicarePlus plans will be permitted to charge patients 
any amount they want for health care services. The same will be 
true for patients electing MSA plans. Balance billing will be 
permitted in managed care plans, as well, whenever patients 
receive non-emergency care outside of the plan, even if such 
care is authorized by the plan. Given the very tight budget 
imposed by H.R. 2425, I am concerned that provider pressure to 
balance bill will grow. If providers begin to move to 
MedicarePlus plans in order to escape balance billing limits, 
beneficiaries will be faced with the choice of following them 
and paying more, or remaining in traditional Medicare where 
fewer doctors and hospitals are able to care for them.

                H.R. 2425 impact on providers is severe.

    While the structure of MedicarePlus is designed to shift 
costs onto beneficiaries, the magnitude of cuts in H.R. 2425 
threaten providers as well. We are concerned, particularly, 
about those providers who constitute the safety net of our 
health care system. Rural hospitals and clinics, already in 
precarious financial condition, will be hard pressed to absorb 
reductions required in H.R. 2425. In addition, urban safety net 
hospitals will face added reductions in special Medicare 
payments for uncompensated care.

                   H.R. 2425 invites fraud and abuse.

    Among our many concerns about H.R. 2425, we are 
particularly concerned about the provisions that would weaken 
our efforts to combat fraud and abuse. H.R. 2425 relaxes 
critical rules that today outlaw kickbacks and that require 
providers to exercise due diligence in submitting accurate and 
true Medicare claims. CBO has determined that these provisions 
of H.R. 2425 will cost the Medicare program over $1 billion 
from 1996 to 2002. Enactment of these provisions could harm the 
quality of beneficiary care, will offset the savings from 
efforts to fight fraud and abuse eleswhere in the bill, and 
will further burden law enforcement efforts to combat health 
care fraud and abuse.

            True Medicare reform is possible and desirable.

    President Clinton has presented a balanced budget plan that 
will safeguard Medicare while strengthening the Part A trust 
fund, increase beneficiary choices, and improve our health care 
system. The President's plan would reduce Medicare spending by 
a net $124 billion over seven years. Of this total, $89 billion 
would come from Part A savings and would therefore extend the 
life of the Part A trust fund through at least the next ten 
years. The President's plan also would expand the kinds of 
health plan choices available to Medicare beneficiaries while 
maintaining existing beneficiary protections throughout the 
program. This plan also adds important new preventive and long-
term care benefits to Medicare. Finally, it is combined with 
broader health care reform initiatives so that coverage is 
expanded for working Americans and cost shifting is not fueled. 
This is the right approach to Medicare reform.
    If H.R. 2425 is approved by the Congress, I will strongly 
recommend that the president veto this bill.
    I have been advised by the Office of Management and Budget 
that there is no objection to the submission of this letter to 
Congress, and that enactment of H.R. 2425 would not be in 
accord with the program of the President.
    An identical letter is being sent to Rep. Bill Archer, 
Chairman, Committee on Ways and Means.
                        Sincerely,
                                                  Donna E. Shalala.

           Department of Health and Human Services,
                      Health Care Financing Administration,
                                  Washington, DC, October 11, 1995.
Hon. Sam Gibbons,
Ranking Member, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Congressman Gibbons: I am writing in response to your 
request for information on the combined impact on the Medicare 
Hospital Insurance (HI) Trust Fund of the Republican Medicare 
proposals in H.R. 2425 together with the repeal of the Social 
Security tax provision in the Omnibus Budget Reconciliation Act 
of 1993 (OBRA '93).
    The OBRA '93 provision increased the portion of Social 
Security subject to Federal income tax and allocated this 
revenue to the Medicare HI Trust Fund. The repeal of this OBRA 
'93 provision would decrease HI Trust Fund revenues.
    The cumulative effect of the Medicare Part A HI reductions 
included in H.R. 2425 for FY 1996--FY 2002, offset by the cost 
of repealing the OBRA '93 provision, would reduce Part A 
expenditures by approximately $93.4 billion. Based on estimates 
from the Health Care Financing Administration's actuaries, the 
resulting year-by-year ``net'' Medicare Part A savings would 
extend the life of the HI Trust Fund through the third quarter 
of calendar year 2006. This estimate is based on the 
intermediate set of assumptions in the 1995 Trustees Report.
    Please let me know if I can provide any further 
information.
            Sincerely,
                                   Bruce C. Vladeck, Administrator.
    Attachment.

   MEDICARE PART A ``NET'' SAVINGS ESTIMATES--NET EFFECT OF H.R. 2425   
       MEDICARE PART A SAVERS AND REPEAL OF OBRA '93 PROVISION \1\      
                        [In billions of dollars]                        
------------------------------------------------------------------------
                                                                 Net    
                                   Medicare     Repeal of     reduction 
              Year                  Part A       OBRA '93     in Part A 
                                   savings    provision \1\    spending 
------------------------------------------------------------------------
1996...........................           -3           2.9          -0.1
1997...........................           -7           4.3          -2.7
1998...........................          -14           4.9          -9.1
1999...........................          -20           5.3         -14.7
2000...........................          -24           5.8         -18.2
2001...........................          -29       \2\ 6.4         -22.6
2002...........................          -33       \2\ 7.0         -26.0
      Total....................         -130          36.6         -93.4
------------------------------------------------------------------------
Based on CBO estimates 10/2/95.                                         
\1\ the OBRA '93 Social Security tax provision increased the portion of 
  Social Security subject to Federal income tax and allocated this      
  revenue to the Medicare HI Trust Fund. The repeal of this provision   
  would decrease HI revenues.                                           
\2\ HHS projections based on CBO estimates for the years 2001-2002 for  
  repeal of OBRA '93 provision.                                         

                                                September 21, 1995.
Hon. Newt Gingrich,
Speaker of the House, U.S. House of Representatives,
Washington, DC.
Hon. Robert Dole,
Majority Leader, U.S. Senate,
Washington, DC.
    Dear Mr. Speaker and Mr. Majority Leader: I understand the 
House Majority is releasing its plan to restructure Medicare 
today. I am writing to discuss the condition of the Medicare 
Hospital Trust Fund in the context of these reform plans.
    As Managing Trustee of the Medicare Hospital Insurance (HI) 
Trust Fund, I am concerned by a growing number of statements by 
Members of Congress which appear to be based on a 
misunderstanding of what our annual report said. Because votes 
for significant changes in Medicare should not be cast without 
Members knowing the facts, I want to recount briefly what the 
Trustees reported about the funding status of Medicare.
    Simply said, no Member of Congress should vote for $270 
billion in Medicare cuts believing that reductions of this size 
have been recommended by the Medicare Trustees or that such 
reductions are needed now to prevent an imminent funding 
crisis. That would be factually incorrect.
    In the annual report to Congress on the financial condition 
of Medicare, the Trustees concluded that the HI Trust Fund will 
not be depleted until 2002, seven years from now. When we 
issued our findings, we asked Congress to take remedial action 
to fix the HI Trust Fund on a near-term basis and then in the 
context of health care reform to make long-term changes in the 
system that would accommodate the influx of ``baby-boomer'' 
beneficiaries. At no time did the Trustees call the funding 
crisis ``imminent.'' Without adequate time for reflection, a 
responsible, bi-partisan long-term solution to the financing 
problem could not be structured. We therefore did not imply 
that cuts of the magnitude being proposed now were needed.
    Nevertheless, the Majority is asking for $270 billion in 
Medicare cuts, almost three times what is needed to guarantee 
the life of the Hospital Insurance (Part A) Trust Fund for the 
next ten years. Moreover, I understand that the $270 billion of 
cuts proposed by the Majority includes increases in costs to 
beneficiaries under Part B of the Medicare program, even though 
increases in Part B do not contribute to the solvency of the 
Part A Trust Fund. In this context it is clear that more than 
$100 billion in Medicare funding reductions are being used to 
pay for other purposes--not to shore up the Medicare HI Trust 
Fund.
    By contrast, the President's proposal, by providing ten 
years of trust fund security, is consistent with actions by 
prior Congresses and would afford us far more than sufficient 
time to propose a bipartisan solution to the long-term fiscal 
needs of Medicare. Such a bipartisan solution will be needed 
regardless of whether the President's plan or Congress's plan 
is finally adopted.
    To emphasize, the Trustees did not recommend $270 billion 
in Medicare cuts at this time nor state that the funding 
problems facing Medicare require actions of this magnitude now 
to deal with a financing problem that occurs in the next 
century.
    I hope this information can be provided to Members of 
Congress on both sides of the aisle as they review the 
significant changes in Medicare that are being considered so 
that Members can have a clear understanding of the facts.
            Sincerely,
                                                   Robert E. Rubin.
                              ----------                              

                        U.S. Department of Justice,
                             Office of Legislative Affairs,
                                 Washington, D.C, October 12, 1995.
Hon. Sam Gibbons,
Ranking Minority Member, Committee on Ways and Means, U.S. House of 
        Representatives, Washington, DC.
    Dear Congressman Gibbons: This letter provides the views of 
the Department of Justice on those aspects of H.R. 2425, the 
Medicare Preservation Act of 1995, relating to medical 
liability reform, specifically Subtitle D, Part 1, 
Sec. Sec. 15301-15315. It is our view that this wholesale 
rewrite of the liability laws relating to the provision of 
medical services and products is totally inappropriate to the 
budget reconciliation process and represents an unacceptable 
extension of federal authority over an area of the law 
historically left to the states.
    This legislation would effect a sweeping reform of the law 
governing medical liability and medical malpractice suits. Such 
suits are premised on State tort law and are, for the most 
part, governed by State court procedures. This legislation 
would preempt State law, both substantively and procedurally, 
in an unprecedented fashion, and would effectively immunize 
health care providers of all kinds from certain types of 
liability related to the negligent provision of medical 
services. In addition, the legislation mingles questionable 
product liability reform measures relating to the manufacture, 
distribution, and labeling of drugs and medical devices with 
medical malpractice reform proposals in a manner wholly 
inappropriate and unnecessary to the purpose of the underlying 
legislation; i.e., reform of the Medicare and Medicaid systems. 
In our opinion, the very purpose of the malpractice liability 
system--to fairly compensate injured victims and to deter 
future misconduct--would be severely compromised by enactment 
of this legislation.
    During the 103rd Congress, senior officials of the Justice 
Department testified before Congress in support of a series of 
medical malpractice proposals included in the President's 
comprehensive health care reform measure, the Health Security 
Act. Those proposals were directed at three specific goals--to 
reduce the costs and delays of malpractice litigation, to 
reduce the practice of ``defensive medicine'' which adds to 
rising national health care costs, and to increase access to 
justice for malpractice victims. The President's proposals 
attempted to address some of the problems of the current 
malpractice system, while recognizing that medical malpractice 
litigation is an essential aspect of State tort law and 
jurisprudence. Over the past decade, virtually every state has 
adopted specific malpractice reforms tailored to the unique 
circumstances of the respective State court and civil justice 
system involved. We strongly believe that medical malpractice 
cases should continue to be litigated primarily in the State 
courts and that medical malpractice reform should respect the 
fundamental nature of state law and procedure.
    Despite considerable tort reform activity at the state 
level, there is, unfortunately, little empirical evidence about 
the practical effects of the various reforms. Calls for reform 
of the medical malpractice system have rested, at least in 
part, on arguments that such initiatives would result in health 
care cost savings by reducing the incentives to practice 
defensive medicine--procedures undertaken or avoided primarily 
to avoid malpractice risk. In 1994, the Office of Technology 
Assessment (``OTT'') published an important study of defensive 
medicine and malpractice liability, ordered by Congress in an 
effort to determine how certain reforms of the liability system 
might alter these practices.\1\ However, the OTA study revealed 
the inherent difficulty of measuring the level and cost of 
defensive medicine. OTA concluded that many aggressive 
procedures are performed because they are simply ``good 
medicine'' or because, in a fee-for-service system, physicians 
are paid for and make money from the services rendered. 
Further, it was found that a high percentage of defensive 
medical procedures ``are ordered to minimize the risk of being 
wrong when the medical consequences of being wrong are 
severe.'' \2\
    \1\ Office of Technology Assessment, Defensive Medicine and Medical 
Malpractice (1994).
    \2\ Id. at 3.
---------------------------------------------------------------------------
    The findings of the OTA study are clearly relevant to 
consideration of the reforms proposed in the Medicare 
Preservation Act. Since the mid-1970's, most of the tort 
reforms implemented in the States were designed primarily to 
reduce medical malpractice insurance costs by limiting the 
payments made per claim, the frequency of suits, or the costs 
of resolving claims. These conventional reforms have retained 
the courts as the forum for resolving malpractice disputes, but 
have altered various legal rules to tilt more in favor of 
defendants, often restricting plaintiffs' access to the courts 
of limiting the amounts that can be recovered. OTA concluded, 
however, that the impact of these reforms on the practice of 
defensive medicine and health care costs remains largely 
unknown and is not likely to be significant.\3\ Accordingly, 
the burden of proving the appropriateness of ``nationalizing'' 
reforms that would have the harshest impact on the most 
seriously injured patients should rest with the proponents of 
such measures. We do not believe that burden has been met. In 
addition to our general objection to this legislation, we offer 
the following specific comments:
    \3\ Id. at 92-93.
---------------------------------------------------------------------------
    Section 15301. Federal Reform of Health Care Liability 
Actions. This section would apply all of the various provisions 
of Subtitle D to any health care liability action brought in 
any State or Federal court, other than suits brought under the 
Vaccine Injury Compensation Act. The section further provides 
that Subtitle D shall preempt any state law ``to the extent 
that such law is inconsistent with the limitations'' set forth 
therein, except that any State law that provides for defenses 
or places limitations on a person's liability in addition to 
those contained in Subtitle D shall not be preempted. The 
section provides that nothing shall be construed to create 
federal question jurisdiction under 28 U.S.C. Sec. 1331 or 
Sec. 1337, but in diversity action brought under 28 U.S.C. 
Sec. 1332, the amount sought as noneconomic or punitive damages 
and attorney's fees and costs shall not be included in 
determining whether the amount in controversy meets the 
requisite $50,000 jurisdictional threshold.
    The Department of Justice has several concerns about these 
provisions. First, section 15301(b) preempts those state laws 
that are less favorable to consumers and patients, but would 
leave in place those laws that impose ``greater restrictions'' 
on liability; i.e., those that favor doctors, hospitals, 
insurance companies, and other health care providers. The 
wording of the preemption provision could create substantial 
confusion, resulting in increased litigation as to which state 
laws or procedures actually are tougher than or 
``inconsistent'' with the proposed reforms. In addition, the 
varying interpretations of these provisions by courts in 50 
states and 94 federal districts would result in a profusion of 
legal conflict, forum shopping, and appellate litigation. For 
those seeking uniformity and predictability, the result could 
be just the opposite, instead significantly increasing the 
costs and delays of malpractice lawsuits.
    The Department is also concerned about the curtailment of 
diversity jurisdiction contained in section 15301(d). 
Currently, the only financial criteria under 28 U.S.C. 
Sec. 1332 is that the ``matter in controversy'' exceeds the sum 
or value of $50,000, exclusive of interest and costs. The 
proposed amendment would establish a special jurisdictional 
requirement for health care liability actions that would not be 
applicable to other types of tort cases or other actions 
generally. In the absence of broader diversity jurisdiction 
reform, which has primarily been proposed as a tool to reduce 
the caseload in the federal courts, there would seem to be no 
justification for this discriminatory provision.
    Section 15302. Definitions.--This section sets forth the 
definition of a variety of terms used in Subtitle D, and in 
doing so, establishes the scope and breadth of the proposed 
reforms.
    The definitions of ``health care liability action'' as set 
forth in section 15302(8) and ``health care provider'' set 
forth in section 15302(9) are particularly problematic. The 
first provision defines a ``health care liability action'' to 
be a civil action brought in State or federal court against (1) 
a health care provider, (2) an ``entity which is obligated to 
provide or pay for health benefits under any health plan 
(including any person or entity acting under a contract or 
arrangement to provide or administer any health benefit),'' or 
(3) ``the manufacturer, distributor, supplier, marketer, 
promoter, or seller of a medical product'' in which the 
claimant alleges a claim based upon the provision of or failure 
to provide or pay for health care services or the use of a 
medical product, regardless of the theory of liability on which 
the claim is based. The definition of ``health care provider'' 
would include doctors, nurses, hospitals, nursing homes, 
clinics (including fertility clinics), and any other 
institution or individual engaged in the delivery of health 
care services.
    In simplified terms, these definitions assure sweeping 
application of the limitations on liability set forth in 
Subtitle D, including not only conventional medical malpractice 
actions, but product liability suits, bad faith insurance 
claims, and breach of contract lawsuits as well.\4\ The 
definition of ``entity'' would include insurance companies, 
health maintenance organizations (``HMOs''), and health plan 
administrators. The application of the proposed limitations on 
liability to such entities would provide insurance companies 
and HMOs with broad protection against certain types of 
liability for denial of health care benefits.
    \4\ Medical malpractice litigation encompasses all liability-
producing conduct arise from the delivery of professional medical 
services. Negligent medical care does not exhaust all potential sources 
of professional liability. For example, liability may result from 
intentional misconduct, breaches of contract guaranteeing coverage of 
specific therapies or results, divulgence of confidential information, 
and failures to prevent injuries to patents. See, Joseph H. King, Jr., 
The Law of Medical Malpractice 3, (2d Ed. 1986).
---------------------------------------------------------------------------
    The liability system is an important complement to 
government regulation of the quality and adequacy of health 
care services. At just the time that there is a growing need to 
police the under-staffing of health care facilities and the 
denial of appropriate treatment by insurance claims managers, 
this legislation would place unprecedented limits on the 
ability of claimants to recover damages for their injuries, 
regardless of the theory of liability. While reform of the 
medical liability system might be germane to comprehensive 
health care reform, these unwise measures are neither necessary 
or appropriate in the context of legislation intended to 
restore solvency to the Medicare insurance fund.
    Section 15311. Statute of Limitations.--This provision 
would limit the time period for filing claims in health care 
liability actions to no more than two years after the date on 
which the injury that is the subject of the action was 
discovered or should reasonably have been discovered, but in no 
event more than five years after the initial injury occurred.
    In medical malpractice actions, the statute of limitations 
is either measured from the date of the negligent treatment or 
from the date the injury could reasonably have been discovered. 
Some states also make a special exception to the statute of 
limitations for cases in which a foreign object was left inside 
a patient during invasive surgery, or in cases of fraud or 
deliberate misconduct. As of 1993, 32 states required that a 
malpractice suit be brought within two years or less after the 
injury is discovered or should have been discovered. Six states 
provide for a three year period from the date of discovery; the 
remaining states have no specific provision relating to 
discovery. In twelve states the maximum number of years in 
which a malpractice case must be brought is higher than the 
proposed five year period.
    The disturbing aspect of section 15311 is its application, 
through the definitional provisions, to cases involving 
something other than medical malpractice. For example, the five 
year statute of limitations could potentially bar medical 
product liability actions involving latent diseases, such as 
AIDS or cancer. The provision would also affect a national 
statute of limitations for breach of contract or bad faith 
insurance claims. Such ``nationalization'' of state law has no 
justification as a means of reducing the practice of defensive 
medical or lowering health care costs, and there is little 
evidence that shorter status of limitations limit malpractice 
payouts or the number of claims.\5\
    \5\ See, Zuckerman, S., Bovbjerg, R.R., and Slaon F., ``Effect of 
Tort Reform and Other Factors on Medical Malpractice Insurance 
Premiums,'' Inquiry 27 (1990); Office of Technology Assessment, supra.;
---------------------------------------------------------------------------
    Section 15312. Calculation and Payment of Damages.
    (a)(1) Limitation on Noneconomic Damages.--This provision 
would limit awards for pain and suffering (non-economic 
damages) to $250,000, regardless of the number of parties 
against whom the action is brought or the number of actions 
brought with respect to the jury.
    Malpractice or product liability damage awards usually have 
two components: direct economic losses (such as medical or 
rehabilitation expenses and lost wages) and non-economic 
damages, such as payments for physical and emotional pain, 
emotional distress, disfigurement, loss of consortium, and 
other non-pecuniary losses. Losses for pain and suffering are 
very difficult to quantify and juries or provide no clear 
standards for determining them. Critics contend that the 
emotional desire in unpredictability high awards.
    Approximately 14 states have placed some limit on non-
economic damages. These limits range from $250,000 (California) 
to $1 million (Wisconsin, West Virginia), and in a number of 
states there are exceptions to the limit. A number of states 
have overturned caps on pain and suffering damages on state 
constitutional grounds, including guarantee of the right to 
trial by jury and access to the courts. Several State 
constitutions, such as those of Arizona, Pennsylvania, and 
Montana, specifically limit the legislature's right to restrict 
damages in tort actions.
    Studies have shown and it is obvious that those affected by 
caps on non-economic damages are those claimants who have been 
most severely injured. It is those individuals who need to be 
compensated for the losses the have been suffered so they may 
get on with their lives with some degree of dignity, hope, and 
security. No one should want to tell persons who have been 
severely injured through the negligence of others that they 
will not receive fair compensation because there is some 
arbitrary limit legislation by Congress, and that they are 
simply out of luck. Such arbitrary limits seem particularly 
unjust when the result of negligence is serious lifetime 
impairment, disfigurement, pain, infertility, or even death. 
Non-economic damage caps also discriminate against women, 
minorities, the elderly, children, the poor, or other patients 
who often cannot demonstrate substantial economic losses (i.e., 
lost wages).
    In light of the serious legal and constitutional issues 
involved, it seems ill-advised to nationalize the harshest and 
most restrictive limitation on non-economic damages. The 
Department of Justice does not endorse this proposal that would 
inflict the greatest financial and emotional harm on those 
victims of negligence or other malfeasance who have been the 
most severely injured.
    (a)(2) Joint and Several Liability.--This provision would 
limit a defendant's liability for non-economic damages this or 
her proportionate share of the fault or responsibility for the 
claimant's actual damages, as determined by the trier of fact. 
Essentially, this section does away with the doctrine of 
``several liability'' for pain and suffering, although 
defendants would remain jointly and severally liable for a 
plaintiff's actual damages.
    When multiple defendants are responsible for a plaintiff's 
injury (doctor, hospital, laboratory, etc.) the plaintiff has 
traditionally had the right to collect from each defendant in 
the amount of their responsibility (joint liability) or the 
plaintiff could collect the entire amount from a single 
defendant (several liability), forcing that defendant sue the 
other defendants for the amount of injury for which they were 
responsible by seeking ``contribution.'' This rule effectively 
allocates the risk of one defendant's insolvency or inability 
to pay to the other defendants, rather than to the plaintiff. 
Some states have eliminated several liability, usually with 
respect to non-economic damages only. Other states have enacted 
modified joint and several liability reforms, usually requiring 
that several liability be limited depending on the relative 
degree of the defendant's fault or the ability of other 
defendants to pay the claim.
    Again, this measure would have a disproportionately 
negative impact on women, the poor, children, the elderly, and 
other individuals who would tend to be awarded greater non-
economic damages than economic damages. Combined with the other 
restrictions on the award of compensation for pain and 
suffering included in this bill (see discussion of section 
15312(a)(1) and section 15312(f)), this provision would inflict 
the greatest harm on those who have been the most severely 
injured. Many states have already addressed reform of the 
doctrine of joint and several liability in a manner that 
reflects the public policy and legal decisions of the 
legislative and judicial branches of that State. A national 
rule limiting the application of joint and several liability in 
a broad array of legal actions is neither necessary or fair.
    Section 15312(b) (1) and (2). Treatment of Punitive 
Damages.--This provision would limit punitive damages in health 
care liability actions, including medical malpractice cases, 
product liability cases, and bad faith insurance claims, to no 
more than three times the amount of economic loss, or $250,000, 
whichever is greater. In addition, the claimant must establish 
by ``clear and convincing'' evidence that the harm suffered was 
the result of conduct (1) specifically intended to cause harm; 
or (2) manifesting a conscious, flagrant indifference to the 
rights or safety of others. The limitation on punitive damages 
is to be ``applied by the court and shall not be disclosed to 
the jury.'' To underscore the drafters' intent, the bill states 
that this section shall not preempt or supersede any State or 
federal law that imposes further limits on the award of 
punitive damages.
    Punitive damages are awarded in cases where the defendant's 
conduct is intentional, malicious, or conscious, with a willful 
disregard for the plaintiff's well-being. The Justice 
Department has previously indicated that, in the context of 
product liability cases, it would support a national standard 
for the award of punitive damages requiring a findings of 
``conscious, flagrant indifference to the safety of those 
persons who might be harmed,'' but would oppose arbitrary caps 
on punitive damages in any amount. Such limited reform would be 
justified in the context of products manufactured in one state 
and sold throughout the country. However, the same reasoning 
would not necessarily apply to malpractice litigation, which 
usually involves a patient, and a local doctor or hospital.
    Legal scholars generally do not regard punitive damages as 
contributing significantly to health care costs. A study by the 
American Bar Foundation identified only 18 punitive damage 
awards out of a total of 1,917 medical malpractice verdicts in 
47 counties from 1981 to 1985.\6\ The Rand Institute for Civil 
Justice discovered only four punitive damage awards in medical 
malpractice cases in San Francisco and Cook Counties between 
1960 and 1984.\7\ The first nationwide study of punitive damage 
verdicts in medial malpractice cases for the thirty year period 
1963-1993 identified only 270 such awards.\8\ This study 
concluded that punitive damages were seldom used to sanction 
incompetent physicians, but were of increasing importance to 
protect patients from harm caused by bureaucratic 
organizations, such as nursing homes, HMOs, and insurance 
companies and related utilization review providers.
    \6\ See, Stephen Daniels and Joanne Martin, ``Myth and Reality in 
Punitive Damages,'' 75 Minn. L. Rev. 1 (1990).
    \7\ Mark Peterson, Punitive Damages: Empirical Findings, (1987).
    \8\ Michael Rustad and Thomas Koenig, ``Reconceptualizing Punitive 
Damages in Medical Malpractice: Targeting Amoral Corporations, Not 
`Moral Monsters' '' 47 Rutgers L. Rev. 975 (1995).
---------------------------------------------------------------------------
    Most states have reformed medical malpractice law in some 
respect and a majority of jurisdictions have restricted 
punitive damages. In 1985, Illinois abolished punitive damages 
in medical malpractice cases altogether. Kansas limits punitive 
damages in medical malpractice to the lesser of $3 million or 
25 percent of the defendant's highest gross annual income for 
any one of the five years preceding the tort, and divides those 
punitive damages between the plaintiff and the state. State 
reforms include capping, state-sharing of awards, increased 
evidentiary burdens, judge-assessed punitive damages, and 
bifurcated trials.
    Section 15312(b) would significantly reduce the deterrent 
effect of punitive damages just as the changing structure of 
health care in the United States exposes more and more 
consumers to decisions which might measure patient safety 
against cost saving strategies. Credible research has 
demonstrated that punitive damage awards are of little 
significance in conventional malpractice litigation against 
doctors and hospitals, but the liability system serves an 
important ``regulatory'' function with respect other health 
care providers and organizations. Medicare reform is not the 
context in which to evaluate the importance of this remedy in 
the rapidly changing world of health care delivery in the 
United States.
    Section 15312(e). Drugs and Devices. This provision would 
provide immunity from punitive damages for the manufacturers of 
pharmaceutical products and medical devices that received pre-
market approval by the Food and Drug Administration (``FDA''), 
unless the defendant, before or after pre-market approval, 
intentionally and wrongfully withheld from or misrepresented to 
the FDA information that is ``material and relevant to the harm 
suffered by the claimant,'' or bribed an official or employee 
of the FDA for the purpose of securing or maintaining approval 
of such drug or device. The measure also extends such immunity 
to those drugs and devices that are not FDA approved, but are 
``generally recognized as safe and effective'' under conditions 
established by the FDA and applicable regulations. Punitive 
damages are also barred in health care liability actions for 
harm relating to the adequacy of tamper-resistant packaging 
unless the drug is found by the court by clear and convincing 
evidence to be ``substantially out of compliance'' with 
relevant regulations.
    This measure relates to product liability suits involving 
defective drugs or medical devices which were approved for sale 
according to the complex regulatory process prescribed by the 
Food, Drug and Cosmetic Act, 21 U.S.C. Sec. 301 et. seq., and 
the Medical Device Amendments, 21 U.S.C. Sec. 360c-1. The broad 
immunity from punitive damages that would be established even 
goes far beyond the so-called ``FDA defense'' amendment adopted 
earlier this year by the House of Representatives during debate 
of H.R. 956, the Product Liability Fairness Act of 1995. Tort 
liability serves to complement and reinforce the FDA regulatory 
process, as exemplified by litigation involving products such 
as the Shiley heart valve, silicone breast implants, Dalkon 
Shield, and DES. Medicare reform is not the context in which to 
consider fundamental alterations to the food and drug liability 
regime.
    Section 15312(f). Periodic Payments for Future Losses. This 
provision allows the defendant in a health care liability 
action to make periodic payments for future economic and non-
economic damages in excess of $50,000, rather than in a lump 
sum. Such periodic payments shall be based on when the damages 
are found likely to occur, as determined by the court. In the 
absence of fraud, the judgment of the court awarding periodic 
payments may not reopen at any time to contest, amend, or 
modify the schedule or amount of the payments.
    Periodic payments help to reduce the impact of large awards 
on malpractice insurers. If a victim is severely injured, the 
damages are based on medical and other expenses that will incur 
over a lifetime, as well as lost wages and pain and suffering. 
If the insurance company can pay out the award as the expenses 
are incurred, the net cost of the malpractice award will be 
lower. Structuring awards also reduces the risk that the 
injured party will deplete funds that are intended to be used 
to pay future medical and economic costs.
    Fourteen states mandate periodic payments of future 
economic damages if the award exceeds a threshold level 
(usually $100,000-$250,000). In another 16 states, periodic 
payments are discretionary, but not mandatory. Many states 
require defendants (or their insurers) to purchase an annuity 
to insure the future payments, and other jurisdictions allow 
payment schedules to be modified in the event of a change in 
the patient's circumstances.
    The Justice Department indicated that as part of 
comprehensive health care reform it supported the periodic 
payment of future damages, both economic and non-economic, 
consistent with the recommendations of the National Conference 
of Commissioners on Uniform State Laws. However, section 
15312(f) sets the threshold for periodic payments at a level 
lower than most states, makes no provision for the defendant's 
(or its insurer's) insolvency, and does not allow the payment 
schedule to be amended or modified to accommodate changed 
circumstances.
    Section 15313. Alternative Dispute Resolution. This 
provision requires any alternate dispute resolution system 
(``ADR'') used to resolve a health care liability action to 
include the limitations on liability set forth in Subtitle D, 
including provisions relating to the statute of limitations, 
non-economic damages, joint and several liability, punitive 
damages, collateral source rule, and periodic payments.
    ADR can be and is an effective tool in reducing the costs 
and delays of medical malpractice and other tort litigation. 
Many states have developed ADR rules and programs that 
encourage parties to resolve disputes before trial; the federal 
courts have also tested the use of ADR as part of the Civil 
Justice Reform Act experiment. However, this provision preempts 
all ADR procedures in the state and federal courts in an 
unprecedented fashion, imposing the proposed limitations on a 
dispute resolution mechanism designed to encourage openness and 
flexibility. This provision would also seem to impose such 
limitations on pre-treatment ADR contracts privately bargained 
for between the health care provider and the consumer. The 
Justice Department strongly opposes the wholesale extension of 
these stringent limitations on liability to the ADR setting.
    Thank you for the opportunity to provide our views on these 
important proposals. Please do not hesitate to contact us if we 
may be of additional assistance with this or any other matter. 
The Office of Management and Budget has advised that there is 
no objection from the standpoint of the Administration's 
programs to the presentation of this report.
            Sincerely,
                           Andrew Fois, Assistant Attorney General.
                              ----------                              

           Department of Health and Human Services,
                               Office of Inspector General,
                                Washington, DC, September 29, 1995.
Re H.R. 2389: ``Safeguarding Medicare Integrity Act of 1995.''
Hon. Sam M. Gibbons,
Ranking Minority Member, House Committee on Ways and Means, House of 
        Representatives, Washington, DC.
    Dear Mr. Gibbons: We have had the opportunity to review the 
newly introduced H.R. 2389, and it is our understanding that 
many of the concepts in H.R. 2389 may be considered in the 
deliberations concerning the ``Medicare Preservation Act.'' We 
strongly support the expressed objective of H.R. 2389 of 
reducing the fraud and abuse which plagues the Medicare 
program. The proposed legislation contains some meritorious 
provisions. However, if enacted, certain major provisions of 
H.R. 2389 would cripple the efforts of law enforcement agencies 
to control health care fraud and abuse in the Medicare program 
and to bring wrongdoers to justice.
    The General Accounting Office estimates the loss to 
Medicare from fraud and abuse at 10 percent of total Medicare 
expenditures, or about $18 billion. We recommend two steps to 
decrease this problem: strengthen the relevant legal 
authorities, and increase the funding for law enforcement 
efforts. Some worthy concepts have been included in H.R. 2389, 
and we support them. For example, we support:
          a voluntary disclosure program, which allows 
        corporations to blow the whistle on themselves if upper 
        management finds wrongdoing has occurred, with 
        carefully defined relief for the corporation from qui 
        tam suits under the False Claims Act (but not waiver by 
        the Secretary of sanctions);
          minimum periods of exclusion (mostly parallel with 
        periods of exclusion currently in regulations) with 
        respect to existing exclusion authorities from Medicare 
        and Medicaid; and
          increases in the maximum penalty amounts which may be 
        imposed under the civil monetary penalty laws regarding 
        health care fraud.
    As stated above, however, H.R. 2389 contains several 
provisions which would seriously erode our ability to control 
Medicare fraud and abuse, including most notably: making the 
civil monetary penalty and anti-kickback laws considerably more 
lenient, the unprecedented creation of an advisory opinion 
mechanism on intent-based statutes, and a trust fund concept 
which would fund only private contractors (not law 
enforcement). Our specific comments on these matters follow.

 1. making civil monetary penalties for fraudulent claims more lenient 
   by relieving providers of the duty to use reasonable diligence to 
               ensure their claims are true and accurate

    Background: The existing civil monetary penalty (CMP) 
provisions regarding false claims were enacted by Congress in 
the 1980's as an administrative remedy, with cases tried by 
administrative law judges with appeals to Federal court. In 
choosing the ``knows or should know'' standard for the mental 
element of the offense, Congress chose a standard which is well 
defined in the Restatement of Torts, Second, Section 12. The 
term ``should know'' places a duty on health care providers to 
use ``reasonable diligence'' to ensure that claims submitted to 
Medicare are true and accurate. The reason this standard was 
chosen was that the Medicare system is heavily reliant on the 
honesty and good faith of providers in submitting their claims. 
The overwhelming majority of claims are never audited or 
investigated.
    Note that the ``should know'' standard does not impose 
liability for honest mistakes. If the provider exercises 
reasonable diligence and still makes a mistake, the provider is 
not liable. No administrative complaint or decision issued by 
the Department of Health and Human Services (HHS) has found an 
honest mistake to be the basis for CMP sanction.
    H.R. 2389 Proposal: Section 201 would redefine the term 
``should know'' in a manner which does away with the duty on 
providers to exercise reasonable diligence to submit true and 
accurate claims. Under this definition, providers would only be 
liable if they act with ``deliberate ignorance'' of false 
claims or if they act with ``reckless disregard'' of false 
claims. In an era when there is great concern about fraud and 
abuse of the Medicare program, it would not be appropriate to 
relieve providers of the duty to use ``reasonable diligence'' 
to ensure that their claims are true and accurate.
    In addition, the bill treats the CMP authority currently 
provided to the Secretary in an inconsistent manner. On one 
hand, it proposes an increase in the amounts of most CMPs which 
may be imposed under the Social Security Act. Yet, it would 
significantly curtail enforcement of these sanction authorities 
by raising the level of culpability which must be proven by the 
Government in order to impose CMPs. It would be far preferable 
not to make any changes to the CMP statutes at this time.

   2. making the anti-kickback statute more lenient by requiring the 
 government to prove that ``the significant'' intent of the defendant 
                              was unlawful

    Background: The anti-kickback statute makes it a criminal 
offense knowingly and willfully (intentionally) to offer or 
receive anything of value in exchange for the referral of 
Medicare or Medicaid business. The statute is designed to 
ensure that medical decisions are not influenced by financial 
rewards from third parties. Kickbacks result in more Medicare 
services being ordered than otherwise, and law enforcement 
experts agree that unlawful kickbacks are very common and 
constitute a serious problem in the Medicare and Medicaid 
programs.
    The two biggest health care fraud cases in history were 
largely based on unlawful kickbacks. In 1994, National Medical 
Enterprises, a chain of psychiatric hospitals, paid $379 
million for giving kickbacks for patient referrals, and other 
improprieties. In 1995, Caremark, Inc. paid $161 million for 
giving kickbacks to physicians who ordered very expensive 
Caremark home infusion products.
    Most kickbacks have sophisticated disguises, like 
consultation arrangements, returns on investments, etc. These 
disguises are hard for the Government to penetrate. Proving a 
kickback case is difficult. There is no record of trivial cases 
being prosecuted under this statute.
    H.R. 2389 Proposal: Section 201 would require the 
Government to prove that ``the significant purpose'' of a 
payment was to induce referrals of business. The phrase ``the 
significant'' implies there can only be one ``significant'' 
purpose of a payment. If so, at least 51 percent of the 
motivation of a payment must be shown to be unlawful. Although 
this proposal may have a superficial appeal, if enacted it 
would threaten the Government's ability to prosecute all but 
the most blatant kickback arrangements.
    The courts interpreting the anti-kickback statute agree 
that the statute applies to the payment of remuneration ``if 
one purpose of the payment was to induce referrals.'' United 
States v. Greber, 760 F.2d 68, 69 (3d Cir. 1985) (emphasis 
added). If payments were intended to induce a physician to 
refer patients, the statute has been violated, even if the 
payments were also intended (in part) to compensate for 
legitimate services. Id, at 72. See also: United States v. 
Kats, 871 F.2d 105, 108 (1989); United States v. Bay State 
Ambulance, 874 F.2d 20, 29-30 (1st Cir. 1989).
    The proposed amendment would overturn these court 
decisions.
    However, the nature of kickbacks and the health care 
industry requires the interpretation adopted by Greber and its 
progeny. To provide that a defendant had the improper intent 
necessary to violate the anti-kickback statute, the prosecution 
must establish the defendant's state of mind, or intent. As 
with any intent-based statute, the prosecution cannot get 
directly inside the defendant's head. The prosecution must rely 
on circumstantial evidence to prove improper intent. 
Circumstantial evidence consists of documents relevant to the 
transaction, testimony about what the defendant said to 
business associates or potential customers, etc. These types of 
evidence are rarely clear about the purposes and motivations of 
the defendant. The difficulties of establishing intent are 
multiplied by the complexity, size, and dynamism of the health 
care industry, as well as the sophistication of most kickback 
scheme participants. Documents are ``pre-sanitized'' by expert 
attorneys. Most defendants are careful what they say. In most 
kickback prosecutions, the Government has a difficult task to 
prove beyond a reasonable doubt that even one purpose of a 
payment is to induce referrals.
    If the Government had to prove that inducement of referrals 
was ``the significant'' reason for the payment, many common 
kickback schemes would be allowed to proliferate. In today's 
health care industry, very few kickback arrangements involve 
the bald payment of money of patients. Most kickbacks have 
sophisticated disguises. Providers can usually argue that any 
suspect payment serves one or more ``legitimate purposes.'' For 
example, payments made to induce referrals often also 
compensate a physician who is providing health care items or 
services. Some payments to referral sources may be disguised as 
returns on investments. Similarly,many lease arrangements that 
indisputably involve the bona fide use of space incorporate 
some inducement to refer in the lease rates. In all of these 
examples, and countless others, it is impossible to quantify 
what portions of payments are made for nefarious versus 
legitimate purposes.
    Where the defendant could argue that there was some 
legitimate purpose for the payment, the prosecution would have 
to prove beyond a reasonable doubt, through circumstantial 
evidence, that the defendant actually had another motive that 
was ``the significant'' reason. For the vast majority of the 
present-day kickback schemes, the proposed amendment would 
place an insurmountable burden of proof on the Government.

  3. c. creation of an easily abused exception from the anti-kickback 
             statute for certain managed care arrangements.

    Background: There is great variety and innovation occurring 
in the managed care industry. Some managed care organizations, 
such as most health maintenance organizations (HMOs) doing 
business with Medicare, consist of providers who assume 
financial risk for the quantity of medical services needed by 
the population they serve. In this context, the incentive to 
offer kickbacks for referrals of patients for additional 
services is minimized, since the providers are at risk for the 
additional costs of those services. IF anything, the incentives 
are to reduce services. Many other managed care organizations 
exist in the fee for service system, where the traditional 
incentives to order more services and pay kickbacks for 
referrals remain. In the fee for service system, the payer 
(like Medicare and private insurance plans) is at financial 
risk of additional services, not the managed care organization. 
While broad protection from the anti-kickback statute may be 
appropriate for capitated, at-risk entities like the HMO 
described above, such protection for managed care organizations 
in the fee for service system would invite serious abuse.
    H.R. 2389 Proposal: Section 202 would establish broad new 
exceptions under the anti-kickback statute for ``any 
capitation, risk-sharing, or disease management program.'' The 
lack of definition of these terms would result in a huge 
opportunity for abusive arrangements to fit within this 
proposed exception. What is ``risk-sharing?'' Is not any 
insurance a form of risk sharing? What is a ``disease 
management program?'' Does not that term include most of health 
care?
    Nefarious organizations could easily escape the kickback 
statute by simply re-arranging their agreements to fit within 
the exception. For example, if a facility wanted to pay doctors 
for referrals, the facility could escape kickbacks liability by 
establishing some device whereby the doctors share in the 
business risk of profit and loss of the business (i.e., they 
would share some risk, at least theoretically). Then, the 
organization could pay blatant kickbacks for every referral 
with impunity.
    If the concern is that the kickback statute is hurting 
innovation, as observed above, there is now an explosion of 
innovation in the health care industry, especially in managed 
care. No one in Government is suggesting that HMOs or preferred 
provider arrangements, etc., formed in good faith, violate the 
kickback statute. There has never been an action against any 
such arrangement under the statute.

   4. inappropriate expansion of the exception to the anti-kickback 
                         statute for discounts.

    Background. Medicare/Medicaid discounts are beneficial and 
to be encouraged with one critical condition: that Medicare 
and/or Medicaid receive and participate fully in the discount. 
For example, if the Medicare reasonable charge for a Part B 
item or service is $100, Medicare would pay $80 of the bill and 
the copayment would be $20. If a 20 percent discount is applied 
to this bill, the charge should be $80, and Medicare would pay 
$64 (80 percent of the $80) and the copayment would be $16. If 
the discount is not shared with Medicare (which would be 
improper), the bill to Medicare would falsely show a $100 
charge. Medicare would pay $80, but the copayment would be $0. 
This discount has not been shared with Medicare.
    Many discounting programs are designed expressly to 
transfer the benefit of discounts away from Medicare. The 
scheme is to give little or no discount on an item or service 
separately billed to Medicare, and give large discounts on 
items not separately billed to Medicare. This scheme results in 
Medicare paying a higher percentage for the separately billed 
item or service than it should.
    For example, a lab offers a deep discount on lab work for 
which Medicare pays a predetermined fee (such as lab tests paid 
by Medicare to the facility as part of a bundled payment), if 
the facility refers to the lab its separately billed Medicare 
lab work, for which no discount is given. The lab calls this a 
``combination'' discount, yet is a discount on some items and 
not on others. Another example is where ancillary or noncovered 
items are furnished free, if a provider pays full price for a 
separately billed item, such as where the purchase of 
incontinence supplies is accompanied by a ``free'' adult 
diaper. Medicare has not shared in these combination discounts.
    H.R. 2389 Proposal: Section 202 would permit discounts on 
one item in a combination to be treated as discounts on another 
item in the combination. This sounds innocent, but it is not. 
Medicare would be a big loser. Discounting should be 
permissible for a supplier to offer a discount on a combination 
of items or services, so long as every item or service 
separately billed to Medicare or Medicaid receives no less of a 
discount than is applied to other items in the combination. If 
the items or services separately billed to Medicare or Medicaid 
receive less of a discount than other items in the combination, 
Medicare and Medicaid are not receiving their fair share of the 
discounts.

   5. UNPRECEDENTED MECHANISM FOR ADVISORY OPINIONS ON INTENT-BASED 
             STATUTES, INCLUDING THE ANTI-KICKBACK STATUTE

    Background: The Government already offers more advice on 
the anti-kickback statute than is provided regarding any other 
criminal provision in the United States Code.
    Industry groups have been seeking advisory opinions under 
the anti-kickback statute for many years, with vigorous 
opposition by the Department of Justice (DOJ), and the HHS 
Office of Inspector General (OIG) under the last three 
administrations, as well as the National Association of 
Attorneys General. In 1987, Congress rejected calls to require 
advisory opinions under this statute. As a compromise, Congress 
required HHS, in consultation with the Attorney General, to 
issue ``safe harbor'' regulations describing conduct which 
would not be subject to criminal prosecution or exclusion. See 
Section 14 of Public Law 100-93.
    To date, the OIG has issued 13 final anti-kickback ``safe 
harbor'' rules and solicited comment on 8 additional proposed 
safe harbor rules, for a total of 21 final and proposed safe 
harbors. Over 50 pages of explanatory material has been 
published in the Federal Register regarding these proposed and 
final rules. In addition, the OIG has issued six general 
``fraud alerts'' describing activity which is suspect under the 
anti-kickback statute. Thus, the Government gives providers 
guidance on what is clearly permissible (safe harbors) under 
the anti-kickback statute and what we consider illegal (fraud 
alerts).
    H.R. 2389 Proposal. HHS would be required to issue advisory 
opinions to the public on the Medicare/Medicaid anti-kickback 
statute (section 1128(b) of the Social Security (Act), as well 
as all other criminal authorities, civil monetary penalty and 
exclusion authorities pertaining to Medicare and Medicaid. HHS 
would be required to respond to requests for advisory opinions 
within 30 days.
    HHS would be authorized to charge requestors a user fee, 
but there is no provision for this fee to be credited to HHS. 
Fees would therefore be deposited in the Treasury as 
miscellaneous receipts.
    Major problems with anti-kickback advisory opinions 
include:
          Advisory opinions on intent-based statutes (such as 
        the anti-kickback statute) are impractical if not 
        impossible.--Because of the inherently subjective, 
        factual nature of intent, it would be impossible for 
        HHS to determine intent based solely upon a written 
        submission from the requestor. Indeed, it does not make 
        sense for a requestor to ask the Government to 
        determine the requestor's own intent. Obviously, the 
        requester already knows what their intent is.
          None of the 11 existing advisory opinion processes in 
        the Federal Government provide advisory opinions 
        regarding the issue of the requestor's intent.--An 
        advisory opinion process for an intent-based statute is 
        without precedent in U.S. law.
          The advisory opinion process in H.R. 2389 would 
        severely hamper the Government's ability to prosecute 
        health care fraud.--Even with appropriate written 
        caveats, defense counsel will hold up a stack of 
        advisory opinions before the jury and claim that the 
        defendant read them and honestly believed (however 
        irrationally) that he or she was not violating the law. 
        The prosecution would have to disprove this defense 
        beyond a reasonable doubt. This will seriously affect 
        the likelihood of conviction of those offering 
        kickbacks.
          Advisory opinions would likely enormous resources and 
        many full time equivalents (FTE) at HHS.--The user fees 
        in the bill would go to the Treasury, not to HHS. Even 
        if the did go to HHS, appropriations committees tend to 
        view them as offsets to appropriations. There are no 
        estimates of number of likely requests, number of FTE 
        required, etc. Also, HHS is permanently downsizing, 
        even as it faces massive structural and program 
        changes. The possible result of the bill is a diversion 
        of hundreds of anti-fraud workers to handle the 
        advisory opinions.
    For the above reasons, DOJ, HHS/OIG and the National 
Association of Attorneys General strongly oppose advisory 
opinions under the anti-kickback statute, and all other intent-
based statutes.

    6. creation of trust fund mechanism which does not benefit law 
                              enforcement

          Background: In our view, the most significant step 
        Congress could undertake to reduce fraud and abuse 
        would be to increase the resources devoted to 
        investigating false claims, kickbacks and other serious 
        misconduct. It is important to recognize that the law 
        enforcement effort to control Medicare fraud is 
        surprisingly small and diminishing. There is evidence 
        of increasing Medicare fraud and abuse, and Medicare 
        expenditures continue to grow substantially. Yet, the 
        staff of the HHS/OIG, the agency with primary 
        enforcement authority over Medicare, has declined from 
        1,411 employees in 1991 to just over 900 today. (Note: 
        259 of the 1,411 positions were transferred to the 
        Social Security Administration). Approximately half of 
        these FTE are devoted to Medicare investigations, 
        audits and program and evaluations. As a result of 
        downsizing, HHS/OIG has had to close 17 OIG 
        investigative office and we now lack an investigative 
        presence in 24 States. The OIG has only about 140 
        investigators for all Medicare cases nationwide. By way 
        of contrast, the State of New York gainfully employs 
        about 300 persons to control Medicaid fraud in that 
        State alone.
    Ironically, the investigative activity of OIG pays for 
itself many times over. Over the last 5 years, every dollar 
devoted to OIG investigations of health care fraud and abuse 
has yielded an average return of over $7 to the Federal 
Treasury, Medicare trust funds, and State Medicaid programs. In 
addition, an increase in enforcement also generates increased 
deterrence, due to the increased chance of fraud being caught. 
For these reasons, many fraud control bills contain a proposal 
to recycle monies recovered from wrongdoers into increased law 
enforcement. The amount an agency gets should not be related to 
how it generates, so that it should not be viewed as a 
``bounty.'' The Attorney General and the Secretary of HHS would 
decide on disbursements from the fund. We believe such 
proposals would strengthen our ability to protect Medicare from 
wrongdoers and at no cost to the taxpayers. The parties who 
actually perpetrate fraud would ``foot the bill.''
    H.R. 2389 Proposal: Section 106 would create a funding 
mechanism using fines and penalties recovered by law 
enforcement agencies from serious wrongdoers. But none of the 
money would be used to help bring others to justice. Instead, 
all the funds would be used only by private contractors for 
``soft'' claims review, such as, medical and utilization 
review, audits of cost reports, and provider education.
    The above functions are indeed necessary, and they are now 
being conducted primarily by the Medicare carriers and 
intermediaries. Since the bill would prohibit carriers and 
intermediaries from performing these functions in the future, 
there appears to be no increase in these functions, but only a 
different funding mechanism.
    These ``soft'' review and education functions are no 
substitute for investigation and prosecution of those who 
intend to defraud Medicare. The funding mechanism in H.R. 2389 
will not result in any more Medicare convictions and sanctions.
    In summary, H.R. 2389 would:
          relieve providers of the legal duty to use reasonable 
        diligence to ensure that the claims they submit are 
        true and accurate; this is the effect of increasing the 
        Government's burden of proof in civil monetary penalty 
        cases;
          substantially increase the Government's burden of 
        proof in anti-kickback cases;
          create new exemptions to the anti-kickback statute 
        which could readily be exploited by those who wish to 
        pay rewards to physicians for referrals of patients;
          create an advisory opinion process on an intent-based 
        criminal statute, a process without precedent in 
        current law; since the fees for advisory opinions would 
        not be available to HHS, our scarce law enforcement 
        resources would be diverted into hiring advisory 
        opinion writers; and
          create a fund to use monies recovered from wrongdoers 
        by law enforcement agencies, but the fund would not be 
        available to assist the law enforcement efforts; all 
        the monies would be used by private contractors only 
        for ``soft'' payment review and education functions.
    In our view, enactment of the bill with these provisions 
would cripple our ability to reduce fraud and abuse in the 
Medicare program and to bring wrongdoers to justice.
    Thank you for your attention to our concerns.
            Sincerely,
                                          June Gibbs Brown,
                                                 Inspector General.
                              ----------                              

                         General Accounting Office,
             Health, Education and Human Services Division,
                                   Washington, DC, October 7, 1995.
Hon. Fortney H. (Pete) Stark,
Ranking Minority Leader, Subcommittee on Health, Committee on Ways and 
        Means, House of Representatives.
    Dear Mr. Stark: Your letter of October 4, 1995, asked us to 
review the fraud and abuse provisions of H.R. 2425, especially 
two provisions changing requirements of the anti-kickback and 
civil monetary penalty sections of the Social Security Act. You 
also forwarded comments you had received from the Department of 
Health and Human Services' (HHS) Office of the Inspector 
General (OIG) and the Department of Justice on H.R. 2389.\1\ 
These agencies expressed serious concerns about the two 
provisions. Because of the limited time available, we 
concentrated on these two provisions and have not fully 
analyzed the other provisions in H.R. 2425.
    \1\ H.R. 2389 was incorporated, with some changes, into H.R. 2425.
---------------------------------------------------------------------------

             proposed change to medicare anti-kickback law

    Section 1128B(b)(2) of the Social Security Act \2\ 
establishes criminal liability for ``[w]hoever knowingly and 
willfully offers or pays any remuneration (including any 
kickback, bribe, or rebate) directly or indirectly, overtly or 
covertly, in cash or in kind to any person to induce such 
person'' to refer persons to them for medical services covered 
by Medicare or certain other health programs. In our 
experience, such arrangements are often disguised to appear to 
provide compensation for professional services or as returns on 
investments. Even when a physician performs a service for the 
money received, the inducements for referrals can result in 
unnecessary payments from Medicare.
    \2\ 42 U.S.C. 1320a-7b(2).
---------------------------------------------------------------------------
    As the HHS OIG pointed out, courts have interpreted section 
1128B(b)(2) to find liability whenever it is proven beyond a 
reasonable doubt that one purpose of a payment was to induce a 
referral.\3\
    \3\ For example, U.S. v. Bay State Ambulance and Hosp. Rental 
Serv., 874 F.2d 20, 29-30 (1st Cir. 1989).
---------------------------------------------------------------------------
    Section 15212(c) of H.R. 2425 would substitute for these 
judicial interpretations by amending the last part of the 
quoted material to read ``to any person for the significant 
purpose of inducing.'' We are not convinced that the use of the 
modifier ``the significant'' would mean, as the OIG indicated, 
that 51 percent of the motivation for a payment would have to 
be to induce referrals in order to establish liability. 
However, ``the significant'' can only be read to mean that 
prosecutors would have to prove beyond a reasonable doubt that 
the primary or most compelling motivation for the payment was 
to induce referrals.
    Providing knowledge is always very difficult because it 
requires determining what was in the mind of an individual or 
individuals. Because it is not scientifically possible to 
provide knowledge directly, doing so requires marshalling a 
convincing argument based solely on circumstantial evidence. We 
agree that, as you surmise, this amendment will make proving 
the facts necessary to establish liability much more difficult. 
Moreover, the effect could well be to make it easier to 
disguise the intent behind kickback arrangements, or make 
disguises currently used more effective in evading prosecution. 
The result would be greater potential for fraud, with its 
negative financial effect on Medicare.

             proposed change to civil monetary penalty law

    Section 1128A(a)(1) of the Social Security Act \4\ 
authorizes civil monetary penalties, for example, for anyone 
who submits claims to Medicare and ``knows or should know'' 
that a claim is for services not actually rendered; for 
services that are false or fraudulent; for physicians' services 
not actually rendered by a physician; or for services performed 
by someone excluded from participating in the program.
    \4\ U.S.C. 1320a-7a(1).
---------------------------------------------------------------------------
    The phrase ``or should know'' was substituted for ``or has 
reason to know'' by section 4118(e)(1) of the Omnibus Budget 
Reconciliation Act of 1987 (OBRA-87) (P.L. 100-203). This 
change originated in the House bill for OBRA-87 and was 
included unchanged in the final version. The relevant House 
report states that this change was intended to overturn In the 
Matter of the Inspector General v. Frank P. Silver, M.D., 
Docket No. C-19 (Apr. 27, 1987).\5\ In Silver, the reviewing 
official held that an employer could not be subject to civil 
monetary penalties for actions taken by his or her employees 
within the scope of their employment, and interpreted ``reason 
to know'' as imposing a duty on one submitting a claim to 
investigate the truth of the claim only if he or she had reason 
to suspect that the information in the claim was erroneous.
    \5\ H.R. Rpt. No. 391, 100th Cong., 1st Sess., pt. 1, at 533.
---------------------------------------------------------------------------
    Although the interpretation of ``reason to know`' in Silver 
is consistent with the discussion of the phrase in the 
Restatement of Torts, Second, section 12, it troubled the 
drafters of the OBRA-87 amendment because they understood that 
it would make it easier for individuals to defraud Medicare by 
freeing them from a general duty to reasonably ensure the 
accuracy of the claims submitted. The amended language was 
expressly intended to ``incorporate common law principles'' 
into the civil monetary penalty provision.\6\ In other words, 
under the current language, providers have an affirmative duty 
to ensure that the claims for payment that they submit, or that 
are submitted by their employees, are accurate. As pointed out 
by the OIG, the phrase ``should know'' is a standard American 
courts are accustomed to.
    \6\ The amendment was included under the title ``Civil Monetary 
Penalty and Exclusion Clarifications,'' 101 Stat. 1330-155.
---------------------------------------------------------------------------
    Section 15212(a)(2) of H.R. 2425 would require proof that 
the person acted ``in deliberate ignorance'' or ``in reckless 
disregard'' of the truth or falsity of the information. This 
would represent a significant change over the due diligence 
required of those submitting claims under the current standard.
    The new definition for ``should know'' is basically the 
statutory definition of the terms ``knowing'' and ``knowingly'' 
found in the federal False Claim Act.\7\ The result is that the 
knowledge standard for Medicare civil Monetary penalties would 
be changed, in effect, from ``know or should know'' to 
``knowing'' or ``knowingly.'' Under the False Claim Act, 
individuals have been found not liable for innocent mistakes 
and, in addition, not liable in cases of negligence.\8\
    \7\ 31 U.S.C. 3729(b).
    \8\ See, for example, Wang v. FMC Corp., 975 F.2d 1412, 1420 (9th 
Cir. 1992).
---------------------------------------------------------------------------
    We agree with the OIG that this new definition of ``should 
know'' would, as drafted, ``significantly curtail enforcement'' 
under the Medicare civil monetary penalty provisions. Assuming 
that this interpretation would be applied with respect to the 
virtually identical definition in the Medicare context, proving 
negligence in the filing of claims would no longer suffice to 
impose a civil monetary penalty. This would result in imposing 
a far greater burden on prosecutors. It would constitute a 
reversal of the action taken in OBRA-87 and reinstate a 
knowledge standard at least as lenient as the one articulated 
in Silver.

                             other concerns

    Although we have not fully analyzed the other provisions in 
H.R. 2425, we noted a few general concerns during our review of 
the fraud and abuse provisions.
    First, a number of additional responsibilities would be 
placed on HHS, its Health Care Financing Administration, and 
the HHS OIG. Such responsibilities include soliciting views 
from and responding to the public on (1) safe harbors, (2) ways 
to improve the administration of Medicare, and (3) complaints 
and allegations about fraud and abuse. However, no resources 
are provided to accomplish these tasks. While any of these 
provisions might be laudable on its own, in today's budgeting 
environment we are concerned that additional resources needed 
for administration might not be available. This could result in 
anti-fraud and abuse staff being spread more thinly than they 
are now with negative consequences for fraud and abuse 
detection and prevention efforts.\9\ Further, it could result 
in insufficient resources to carry out the intent of the 
legislative provisions.
    \9\ We have commented on many occasions on the need for adequate 
resources to effectively perform the tasks that comprise fraud and 
abuse detection and prosecution.
---------------------------------------------------------------------------
    Second, the bill would make a number of changes to 
Medicare's prohibition on physician referrals to facilities and 
suppliers in which they have an ownership interest. We, as well 
as the HHS OIG and others, have conducted a number of studies 
that identified increased use of services when physicians refer 
patients to entities they own or in which they have substantial 
financial interests. Substantial savings were estimated to 
accrue from enactment of the provisions proposed for 
modification, and we are concerned that this could increase 
Medicare costs. We are particularly concerned about repeal of 
the provision requiring covered providers and suppliers to 
report to HHS on who their owners are. Without this 
information, it would be very difficult and expensive for HHS 
to enforce the prohibition or to identify violations.
    We are sending a copy of this letter to the Chairman, 
Subcommittee on Health. If you have any questions about the 
matters discussed in this letter, please contact Tom Dowdal, 
Assistant Director.
            Sincerely yours,
                                            Sara F. Jaggar,
               Director, Health Financing and Public Health Issues.
                      ADDITIONAL DISSENTING VIEWS

    This bill, H.R. 2422, The Medicare Security Act, is the 
first introduced Democratic alternative to Republican Medicare 
proposal (H.R. 2425)--a simple 20 page solution to Medicare's 
short-term funding problem. H.R. 2422, which is cosponsored by 
thirty of my colleagues, including three Members of the Ways 
and Means Committee, sharply contrasts with H.R. 2425 and shows 
the American people that we can protect Medicare without 
punishing beneficiaries or disrupting our health care delivery 
system.
    We do not dispute the facts that Medicare is growing 
rapidly and its rate of growth needs to be contained if we are 
to avoid bankrupting the Federal Government. But Medicare's 
growth is not so frenzied that it must be reduced by $270 
billion over the next seven years. Cuts of that magnitude do 
nothing to save the Medicare program or extend the solvency of 
the Part A trust fund any longer than it is extended by my 
bill--to 2006. Medicare is targeted by the Republicans for a 
cut of $270 billion for one reason only and that is to balance 
the budget in seven years.
    Many Republicans are using the promise of a balanced budget 
as an excuse to dismantle the most important functions of 
government--functions that the American people depend upon to 
protect the economic and physical security of their own 
families and their parents. The Republican Medicare bill, H.R. 
2425, attacks not only seniors, but also middle-class families 
who will be forced to choose between paying the medical bills 
of their elderly parents or college tuition for their children. 
But this proposal demonstrates that cuts of $270 billion are 
not inevitable and that the rate of growth of Medicare can be 
controlled to protect the middle class and to preserve our 
national government as a partner with the American people, 
creating opportunity and providing security. The Medicare 
Security Act, H.R. 2422, slows Medicare spending by $90 billion 
over the next seven years, which will keep the Medicare Part A 
trust fund solvent through 2006. This allows 10 years to adjust 
the system to accommodate the baby-boomers entering Medicare, 
without imposing hidden costs on seniors or impeding their 
access to care.
    But let's be clear that the current debate over Medicare 
springs in large part from the failure of systemic health care 
reform. The Republican Medicare Act does absolutely nothing to 
help the 41 million uninsured persons in this country. The 
cost-shifting this bill presumes no doubt will increase 
substantially the cost of health insurance premiums for the 
middle class, swelling the number of uninsured people.
    If we had universal coverage in this country, the Medicare 
trust fund problem would be much easier to solve, and 
containing costs in Medicare would be much easier to 
accomplish. The cost problems of Medicare are nothing more than 
a reflection of the cost problems in the health care system as 
a whole. If this country had universal coverage, the solvency 
of the Medicare Trust fund would not even be an issue. It will 
be impossible to make Medicare truly secure for the next 
generation until we have universal coverage. Until all 
Americans have health insurance, the cost of providing health 
care for the uninsured will continue to be shifted onto those 
persons with health insurance in the form of higher premiums 
and increased costs. But, unfortunately, we do not have 
universal coverage in this country. So, operating under the 
current system, H.R. 2422, the Medicare Security Act, extends 
the life of the Medicare trust fund for as long as the 
Congressional Budget Office will measure it--to 2006. This is 
achieved by cutting $90 billion from Medicare over 7 years.
    Four of Medicare's trustees have stated that $89 billion is 
needed to stabilize the Trust Fund until 2006 and that the $270 
billion in cuts proposed in the Republican bill are 
unnecessary.
    A reasonable alternative, my proposal cuts only $67 billion 
from Medicare Part A and $23 billion from Part B, with all of 
the Part B savings directed into the Part A Trust Fund. These 
cuts are adjustments that the system can absorb and that 
preserve quality and service to beneficiaries, insuring that 
recipients continue to receive the same level of Medicare 
coverage and benefits that they have today. The Republican 
proposal can offer no such promise.
    Equally important, my proposal insures that adjustments in 
the Medicare program will not cause profound disruptions 
throughout the entire health care delivery system, threaten our 
teaching hospitals, or affect Medicare recipients' access to 
high quality medical care. Moreover, this approach avoids the 
substantial increases in both the cost of private insurance and 
the number of uninsured Americans which the Republican plan 
guarantees. The cuts in H.R. 2422, the Medicare Security Act, 
are distributed equitably throughout the health care system to 
doctors, hospitals, home health agencies, and skilled nursing 
facilities. In this bill there is no increased costs to 
beneficiaries and adjustments in provider reimbursements have 
been tailored specifically to protect the basic elements of our 
health care infrastructure. This alternative Medicare proposal 
places no additional financial burden on our elderly poor nor 
on their families.
    The real problem for Medicare starts in the year 2010 when 
the baby-boomers enter the program. The Republican proposal 
does nothing to solve this problem. Therefore, this bill, like 
the Republican bill, creates a bipartisan commission to address 
specifically the changes needed in Medicare and in health 
coverage and finance generally to accommodate the aging baby-
boomers who will be entering Medicare after 2010.
    We are calling for a bipartisan commission because we need 
to engage in a national debate about what kind of Medicare 
program we want for older Americans and whether or not we are 
willing to pay for that program. A Blue Ribbon commission will 
be charged with the responsibility of building a national 
consensus on the future of Medicare.
    The Commission will make recommendations to Congress by 
January 1, 1998, eight years in advance of any foreseeable 
Medicare solvency problem, on how to finance Medicare for baby-
boomers and what Medicare should offer beneficiaries. In our 
view, the Commission is the most important part of the bill and 
the Medicare debate.
    H.R. 2422, the Medicare Security Act, lays down a marker 
for integrity and simplicity. According to the Congressional 
Budget Office, this bill and the Republican Medicare bill take 
the nation to the same destination in 2006. Unfortunately, the 
Republicans' route takes the nation on a ride to the tune of 
$270 billion.

                                   Jim McDermott.
                                   Charles Rangel.
                                   Gerald Kleczka.

                                

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